Economy in Brief

Developed economy trends The OECD leading indicators for January show slight increases of 0.1% for the OECD Major 7 members. Japan shows a flat performance. The United States shows an increase of 0.1%. All of these top-of-the-table metrics are month-to-month changes. They follow identical month-to-month changes posted in January and December for each country or grouping.

Annualized growth rates for these metrics show growth rates over 12 months, six months and three months that reveal acceleration for the OECD 7 group as the 12-month growth rate is -1.9%, the six-month growth rate rises to 0.8%, and the three-month growth rate is a slightly-improved 1.0%. Japan logs negative growth rates for all three periods, but its three- and six-month growth rates are less weak than its 12-month growth rate. The U.S. shows acceleration with the 12-month growth rate at -1.9%, a six-month growth rate of 1%, and a three-month growth rate of 1.3%. The far-right hand column ranks these three OECD units on their index levels; all three regions stand below their respective medians which means they have rankings below the 50th percentile on data back to late-1999.

The OECD prefers to view the signals of its indicators over six months. The next panel on the table looks at changes in six-month averages. On this metric, six-month growth rates from six months ago, are positive for the OECD 7, for the U.S., and for China, while Japan posts a flat performance on this measure in January after rising in December. Sequential growth rates are presented to the right for six-month periods on a point-to-point basis for nonoverlapping rates of growth. The OECD 7 shows accelerating results. Japan shows mixed results. U.S. growth rates show acceleration and Chinese growth rates show acceleration. China’s growth rates are in sync with those from the U.S. The right-hand column offers percentile standings against six-month growth rates for data back to 1999. Each of the OECD metrics shows a standing above its median (which occurs at the 50% mark) except for Japan that has a 45.5 percentile standing. Japan scores as weak when the data are applied using different methods.

The bottom panel in the table presents levels of the OECD LEIs. The level ‘100’ represents normal growth; anything below 100 represents sub-normal growth. The table shows subnormal growth indicated everywhere except in the U.K., Japan, and China. However, the ratio of the current indexes to their value of six-months ago shows improvement everywhere except Japan; only France, the U.K., and China in this lower panel have queue standings for the LEI indexes above their respective medians (50% ranking).

On balance, the OECD indicators in January show some mild improvement underway with LEI indexes at weak levels but beginning to grow at a faster pace.

Stability settles in for the composite PMIs in January 2024. The average for all 25 members in the table is 50.5 in November; that rises to 51.1 in December and to 51.5 in January 2024. It’s a small set of increases, but the improvements offer a picture of stability. The overall metrics show an average of 51.6 for the composite PMIs over 12 months, which falls back to 50.8 over six months but then rises back to 51.0 over three months. This set of data confirms that these PMI gauges have been floating around in a narrow range for the past year. The medians for these same time periods also show a great deal of stability; there is some slight uptick over the last three months, preceded by considerable stability over 12 months, six months and three months.

PMI values vs. their queue standings The composite PMIs are a weighted average of the manufacturing and service sector PMIs for the various countries/reporters in the table. The average for all 25 countries is a queue standing of 48.7% on an unweighted basis while the median queue standing is a 46.9 percentile standing. The standings which are expressed in percentile terms should not be confused with the PMI gauges that are diffusion gauges expressed as all the rising observations plus half of the unchanged observations as a percent of the total number of observations in each country as reported by participants in each reporting region. With the queue standings, we look at the current PMI diffusion data that populate the table and rank them in their own history for each reporter. Queue standings are presented in only two columns differentiated in presentation with percent signs.

The table shows that in January there are 9 jurisdictions below a diffusion value of 50, which is the breakeven mark (dividing line between expansion and contraction) for the composite compared to 11 being below the composite of 50 in November and December. The number jurisdictions below 50 has fluctuated and a fairly narrow range with 8 averaging below 50 over 12 months, 10 averaging below 50 over six months and 9 averaging below 50 over three months.

Another metric of how conditions are evolving is to look at the changes period-to-period. On that metric, we see that nine of the 25 jurisdictions are slowing month-to-month in January and in December and those are smaller amounts than the 12 that were slowing in November compared to October. The 12-month average shows that there are 13 slowing comparing the 12-month average to 12-months ago. There are 18 slowing comparing over six months to the average over 12 months, marking the 6-month period as the period of the most intense weakness over this past year. Whereas looking at 3 months compared to 6 months, there are only 10 jurisdictions indicating slowing.

The far-right hand column creates percentile standings for all the metrics in the table over the last four years. Only ten of these jurisdictions show standings above the 50th percentile, marking only 10 as having standings above their medians for this four-year period. The average queue standing for these metrics is in the 48.7 percentile, while the median among these is at 46.9 percentile, a weaker figure. Fifteen of the jurisdictions currently are below their medians for the previous four-year period. This represents a reading below their four-year median standing.

On balance, these data depict a global economy that has been through a period of considerable slowing and weakness where conditions are beginning to stabilize and have been stabilizing to various degrees over the last year. The diffusion indexes, viewed broadly, suggest that contraction is somewhat prevalent but not common as there are many fewer jurisdictions below 50 and then above 50 on all horizons. Period-to-period slowing has also lost momentum; it reached its point of peak weakness over 6 months compared to 12 months and has since shed some of that weakening tendency. Percentile standings, however, mark the average and median readings as below their four-year averages and medians. The BIC countries excluding Russia are an exception with averages for their percentile standings at the 78th percentile. Meanwhile, the U.S., the U.K., and EMU regions have queue percentile standings in their 40th percentile, still quite weak. The large, developed countries continue to show some of the weakest performance during this time.

In this week's letter, we evaluate recent developments in Asia’ supply chains and trade. First, we analyze the consequences of ongoing disturbances in the Red Sea, observing a temporary reduction in freight and bunker fuel prices following their initial surges. Our discussion then turns to the potential effects of these developments on Asia, highlighting that supplier lead times have remained largely unaffected thus far. We further investigate the breakdown of geographical sources of imports for the region, pointing out that the predominance of intra-Asia trade could serve as a buffer against disruptions in sea routes elsewhere. We also expand our analysis to include a wider perspective on the semiconductor industry, recognizing Asia's contribution to the resurgence in global sales. Finally, we shed light on the varying growth rates of semiconductor exports among Asian countries.

Impacts of Red Sea disruptions so far The Baltic Dry Index (BDI), a composite of dry bulk shipping costs, surged to historic highs during the initial waves of Houthi attacks in early December (chart 1). That said, the index quickly normalized after sentiment stabilized and as shipment re-routings were underway. In contrast, the Drewry World Container Index (WCI), which captures shipping costs associated with eight major east-west routes, only surged in early January. The surge was driven by costs relating to routes that often require passage through the Red Sea (e.g., between Shanghai and western cities). Nonetheless, the WCI has already started to show signs of peaking, as prices moderated in early February.

Industrial production for French manufacturing rose 1.2% month-to-month in December after gaining 0.2% in November and being flat in October. The progression has manufacturing output in France rising from 0.9% over 12 months to a 2% pace over six months to a 16.5% annual rate over three months. This clear accelerating progression is good news for French production. However, quarter-to-date data only show output up at a 0.2% annual rate in the just-completed fourth quarter.

Looking at the components the output of consumer nondurable goods also shows a progression of accelerating output and that is the only component that does that; however, the four components of output consumer durables, consumer nondurables capital goods and intermediate goods show three of them with three-month output growth at a faster pace than 12-month output growth period; the exception is consumer durables that have made a sharp turn lower falling at a 9.2% annual rate over three months compared to a 1.5% gain over 12 months.

The output of autos has been sporadic, but that's not unusual for that sector. Over the most recent three months auto production is up at a 28.2% annual rate compared to -0.8% over 12 months and a sharper -8% annual rate over six months. Consumer spending on autos in France picked up in December after two months of declining, rising by 9.1% month-to-month. Consumer spending on autos is up about 22% over 12 months, then it's up at a 43% annual rate over six months, and then it settles back to a 22% growth rate over three months. This is essentially directionless performance in terms of acceleration, but it does show steady strength and at least an attempt at acceleration over six months on the part of consumers. In many other respects, the French economy has been weak. French GDP has declined in two consecutive quarters, and has annualized year-over-year growth of only 0.6% in Q3 and 0.7% in Q4.

The chart juxtaposes year-over-year industrial production traced out in red against France’s manufacturing PMI that is presented as a level. When the PMI is below 50 manufacturing output is supposed to be declining. We see that from 2020 to early 2021 that rule was obeyed fairly well. Then in later 2021, the PMI stayed at a mid-50 level while output briefly dipped and showed contraction. Later in 2022, the French manufacturing PMI fell below, and then return back to its 50% mark, as industrial output continued to fluctuate between roughly 0 and 3%. In 2023, the PMI decidedly began heading South and moving significantly below the 50% mark down into the mid to lower 40s signaling declines in the manufacturing sector. However, during this period, industrial production moved down to a lower growth trajectory, showing negative growth rates only sporadically. The PMI statistic may not map perfectly into growth, expansion, weakness, and contraction on the part of French manufacturing; however, the two signals are not incompatible either.