Professor Mark J. Perry's Blog for Economics and Finance
The OECD released updated data yesterday for its Composite Leading Indicators Index for 29 member countries. The Leading Indicators Index has increased in each of the last 12 months, and reached the highest level in February (103.57) since May of 1979, more than 30 years ago (see chart above, data here). It sure looks to me like another V-shaped sign of worldwide economic recovery - add this to the growing list.
Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan. Perry holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University near Washington, D.C. In addition, he holds an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota. In addition to a faculty appointment at the University of Michigan-Flint, Perry is also a visiting scholar at The American Enterprise Institute in Washington, D.C.
12 Comments:
perhaps it is the first half of a W
All the "OECD Composite Leading Indicators" index shows, in a crude way, is the global economy is expanding:
"The OECD CLI is designed to provide early signals of turning points in business cycles – fluctuations of economic activity around its long term potential level. The approach, focusing on turning points (peaks and troughs), results in CLIs that provide qualitative rather than quantitative information on short-term economic movements.
Four cyclical phases form the basis of this qualitative approach: expansion – CLI increasing and above 100; downturn – CLI decreasing and above 100; slowdown – CLI decreasing and below 100; recovery – CLI increasing and below 100. Although the CLIs attempt to predict movements in the output gap, they should not be interpreted as providing exact forecasts."
The V shape of many indicators convince me that what we have experienced will be called the Panic of 2008. Interesting that is 101 years since the last episode that was called a panic. Its all consistent with everyone in late sept-dec being in complete panic mode, the runs on money market funds etc. The panic happend in this case on top of a recession, so that explains the total impact. (Envision a trough where the curve becomes much steeper for a while, that would be the panic period)
Lyle, panics happen quickly. There've been many of them, since the panic of 1907. There may be another panic in 2011, unless many state governments find ways to boost revenues.
Even if U.S. real GDP expands slightly above potential output (3% to 3.5% per year), it'll take about a decade to close the output gap.
Note that the big down leg in this panic in this case lasted (as suggested by To Big to Fail, and Paulsons Book) from the fall of Lehman till Paulson gave capital to the banks in Late Oct. It then took a about 6 months for the effects to rattle around the economy, as it did in 1907 and sentiment began to turn in March 2009. What we had was a banking panic just like 1907 1893 and others, caused by a banking system (in this case the shadow banking system) that had no central bank to back it up. The event comparable to the copper corner was the breaking the buck at the reserve primary fund.
Note that some of the 19th century panics lasted several years (1896) with unemployment being the lagging indicator as it is today.
and for the other side of the argument, here is the argument for an upside down V re-recession.
http://www.nfib.com/tabid/732/Default.aspx?cmsid=51254
I'd like to trademark that term and put it on T-Shirts.
"Welcome to the re-recession 2011"
The OECD Index of 29 countries indicates stronger growth than the OECD prediction of G-7 countries:
OECD Sees G-7 Economic Growth Slow, Germany Contracting
APRIL 7, 2010
G-7 economies will continue to grow in the first half of 2010, but at a slower speed and with different rhythms.
Growth will slow as support from the inventory cycle fades, fiscal stimulus measures come to an end and as private demand suffers from slow credit growth and weak labor markets, the OECD said.
The U.S. economy is estimated to have grown 2.4% in the first quarter and is forecast to grow 2.3% in the second as it continues to outpace euro-zone economies.
The OECD estimates that German gross domestic product contracted at an annualized rate of 0.4% in the first quarter, while the combined GDP of the G-7 rose at an annualized rate of 1.9%.
"We do not see inflation concerns and therefore monetary policy should be moving accordingly."
The $787 billion stimulus plan and most of the subsequent spending programs have been failures. They failed to spur economic growth enough to raise tax revenues, reduce budget deficits, and destroyed assets, goods, and capital through idle resources and government inefficiencies.
U.S. demand may be a little stronger in the first half of 2010, than projected, from the $8,000 homebuying tax credit and another extension of unemployment benefits. However, this boost may be temporary, and demand may fall again later in the year. The negatives are too much for the positives to facilitate growth much.
How's the Baltric Dry Index? My understanding is that it has been falling for about a month. And gasoline has been going up. Now about $2.88 nationally compared to $2.62 two months and $2.03 a year ago. A tax increase surging through the economy.
Many economic indicators deliberately magnify effects for clarity in turning points. By no means should the magnitude of the change in the indicator be used as a gauge of the change in the overall economy.
The Ceridian-UCLA Economic Pulse is one example of such an index.
Good macroeconomists understand the way an index relates to the economy. Imagine a doctor who thought a patient in cardiac fibrillation had a really strong heart or that a flat-line EKG represented a "stable" condition not worth worrying about. How often do we see economic data presented and explained here in just such a fashion?
Titus, if an index hasn't been mentioned on Carpe Diem for several weeks, you can bet the farm it's down.
Yeah, we don't talk about the BDI around these parts. Suprised the post still exists.
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