OECD LEIs Point to a Ramp Down in Growth - and Nothing More

The OECD metrics this month show a broad tendency for growth to slow down. In July, the overall OECD measure saw month-to-month declines of 0.2%. It also saw the seven-economies measure fall by 0.2%, the euro area metric fall by 0.2%, and the U.S. measure fall by 0.2%. However, the LEI reading for Japan is flat on the month, the same as it was in June.

Over three months, the LEI growth progression shows declines between 2.4% for the euro area and 2.1% for the OECD overall while Japan logs a number that is the strongest in this group at minus 0.2%. These are annualized growth rates over three months.

Over six months, the metrics range from annual growth is weakest in the euro area at minus 2.5% but for all the OECD the figure is as strong as minus 2%. Japan's reading comes out flat over six months.

Over 12 months, all these areas show growth in the LEIs that range from a low of 2.3% in Japan to a high of 3% in the euro area and in the U.S. So, what we see is a pattern a year ago where the OECD leading economic indicators were growing nicely and then six months pass and there is widespread weakness in the OECD area and over three months that weakness sustains itself.

The percentile standing of the OECD indexes in their level form for all the OECD areas we've just mentioned are in the lower 20th percentile of their respective ranges apart from Japan that has a 62nd percentile standing.

I will not go through the next panel on Table 1 quite as thoroughly this one looks at six-month growth rates and gets pretty much the same results as the panel above that looked at month-to-month growth and that looked at sequential growth rates. The queue standings for six-month growth rates however are weaker than standings for the level of the LEI indexes. With all the OECD regions now in their bottom 10 percentile except for Japan which over six months is now below its 50th percentile at a 47.6 percentile standing.

The next panel of the table looks a more detailed and individual countries as well as the OECD region on the European Monetary Union and the OECD-seven. In this table that includes China and has 12 countries and regions, only Japan has an LEI above 100 indicating normal growth. All the rest have values below 100 that indicate some kind of subpar growth or slow down. But most countries are not terribly far below their 100 mark. In July, the weakest reading is Greece at 96.7 followed by a 98.1 reading in France and a 98.3 reading in the U.K. The U.S. has a 99.0 index. Percentile standings on the indexes for these countries and regions shows only Japan and Germany above their 50th percentile standing which puts them above their historic medians. After that, France has the strongest standing at a 42.8 percentile mark, Spain at a 27.4 percentile mark and the EMU at the 20.2 percentile mark. All other readings are below their respective, 20th percentile standing for the period.

Developing economics Table 2 (below) shows results for developing economies. In July, of the 13 economies in the table all show month-to-month declines except Slovakia. All countries show declines over June and May. In May Slovakia reads as zero, but on an un-rounded basis it's actually showing a small decline.

Over three months, all the entries show declines. Over six months, all the entries show declines except Slovakia. Over 12 months, all the entries show declines except Slovakia and Slovenia.

Looking at the level, only two countries have readings above 100 in July: Mexico at 101.2 and Slovenia at 100.3.

The percentile standings and the levels of these indexes show readings at or above 50% in Mexico, India, and Slovenia. All of the rest are weaker with the Czech Republic and Slovakia showing standings close to the 40% mark; all the rest are at the 25th percentile or lower in their historic queue of readings. The 76.9 percentile figure at the bottom of the column on percentiles logs the proportion of values below 50, indicating below median results in the various countries. In addition to that, the median percentile standing is only in its 25th percentile for the group on an unweighted basis. The developing economy group shows a lot of weakness.

Summing up Both developed and the developing economy regions show a great deal of weakness. However, growth rates have not deteriorated strongly over three months compared to six months, but they have retained their tilt to the negative indicating that subnormal growth is continuing. So far, there is no evidence that weakness is intensifying other than marginally. At least that much of it is good news. Central bankers who hold out hope for a soft landing will find some support in the leading economic indicators this month. These LEIs suggest that bankers are getting the slowdown that they desire and at least so far it is not snowballing into something worse.