Monday, May 10, 2010

OECD Leading Index Hits 30-Year High in March

The OECD released data today showing that its Composite Leading Indicator Index for 29 member countries came close to reaching a 31-year high in March (see chart above, data here). Having increased now for 13 consecutive months starting in March of last year, the OECD Composite Leading Indicators reached 103.9 in March of this year, the highest reading since April 1979, almost 31 years ago.

Although there were monthly declines reported for some non-OECD countries like China and Brazil, and small monthly declines in OECD members Greece, Mexico, New Zealand and South Korea, a flat index for France, with almost all other leading indexes showing continued improvements in March including the overall OECD total (see graph above), 24 of the 29 individual OECD countries including the U.S. and Canada, 18 of the 20 European countries, the Euro area as a group, the G7 countries, NAFTA members, and the non-OECD countries India, Russia, Indonesia and South Africa.

Overall, this is a very positive report, and further strengthens the evidence that the broad-based global V-shaped economic recovery currently underway will continue into the future.


At 5/10/2010 1:26 PM, Anonymous morganovich said...

there are the first lines of the OECD press release:

OECD composite leading indicators point to slowdown in pace of expansion

OECD composite leading indicators (CLIs) for March 2010 point to a slowdown in the pace of economic activity. In most OECD countries signs of slowing growth are tentative, but stronger signals have appeared in France and Italy, and some evidence of a potential halt in expansion is emerging in China and Brazil.

why is your assessment of these numbers so different dr perry?

also: is there any evidence of the prospective predictive power of this index? i've never seen any.

finally, right after such a dramatic 30 year low, it's easy to hit a high when you are using yoy %'s.

if my car dealership sells 1000 cars in 2008, and 300 in 2009, a 100% gain to 600 in 2010(highest growth in 30 years!) still means business is punk

At 5/10/2010 1:30 PM, Anonymous Benny The Man said...

Die, recession, die, die, die.

China is booming so hard the Chinese government is trying to cool it off. Land values to the moon in major cities.

Far East going fine.

Think Asia.

At 5/10/2010 3:24 PM, Blogger bobble said...

note the "cross of death" at the end of march on china stock index

At 5/10/2010 5:45 PM, Blogger PeakTrader said...

Deja vu:

The OECD CLIs 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.

My comment: The weak expansion will likely continue.

At 5/10/2010 8:26 PM, Anonymous gettingrational said...

I don't understand the criticism of reporting the OCED Leading Index. Look at the tremendous downturn and recovery -- the most pronounced V in all of "graphdom". These are indicators and the indications of a strong recovery are quite hopeful and dramatic.

BTW, I am going to state that the most recent recession was not one; but rather a depression. The outlook of people is quite pessimistic. I have people that did work for me last year that still havn't billed (even though I have asked). This is depression that is intertwined both individuallly and as an economy.

At 5/10/2010 10:41 PM, Anonymous Anonymous said...

As the congress and the senate argue the details of financial reform there are new proposals to be included in a new tax law.
This new law will make it mandatory for all foreign based banks to reveal intimate account details of all account holders including Americans of overseas accounts. about time.

At 5/11/2010 2:49 AM, Blogger PeakTrader said...

I think, we're still in a recovery, because we haven't gained what was lost, and exceeded it (e.g. 2007 levels). Quantitative data show more of an L than a V recovery.

Was it a regulation or liquidity crisis? I think, a lack of liquidity caused the recession rather than a lack of regulation, which I've explained before.

Government has benefited the most and has been successful shifting blame.

At 5/11/2010 8:31 AM, Anonymous morganovich said...


i'll go you a step further and say that the government caused the recession by:

1. pursuing ludicrously loose monetary policy that re inflated a bubble to avoid a downturn in 2000-1

2. mandating horrifyingly low lending standard by forcing banks to make a trillion dollars worth of subprime mortgage loans through the CRA

3. actively promoting the packaging of crummy mortgages into AAA product by providing a well understood guarantee to freddy and fannie products. (freddy and fannie were/are a really ugly hybrid of public private that was bound to end in tears - all they did was use federal backing to turn lead into gold)

4. retarding adjustment and recovery by taxing, running up a huge debt, mandating over investment in us treasuries by moving tier one ratios, and crowding out private lending and enterprise.

if you think that recession was brutal, wait until the next one. we're building up even worse imbalances this time and using the federal balance sheet to do it.

At 5/11/2010 2:49 PM, Blogger PeakTrader said...

Morganovich, many people believe accommodative monetary policy, in 2001, created the bubble. However, the Fed had no choice and it was the appropriate policy to put a floor on the recession, and attempt to raise actual output towards potential output.

Restrictive monetary policy helped caused the recession that began in Dec '07. Bernanke wanted to prove he wasn't an inflation dove. So, he kept monetary policy restrictive for too long.

The bubble was created by a record 20 consecutive quarters of double digit earnings growth by U.S. corporations and massive capital inflows to keep the balance of payments balanced. It was a virtuous U.S. cycle of consumption-investment that turned into a boom, which was unsustainable.

Restrictive monetary policy, contractionary fiscal policy, and export-led economies dried up liquidity. The correction was taking place slowly, until Lehman failed, which froze the wheels in its tracks.

At 5/11/2010 3:26 PM, Anonymous grant said...

Morganovich? Would the economy build up so far if you simply threw on the brakes when necessary regardless of the political consequences.
The republicans were already dead but there was no mechanism to end the agony for the people.

At 5/11/2010 6:34 PM, Anonymous grant said...

Were off again current spending is double personal income.

At 5/11/2010 8:14 PM, Anonymous Miguel Sanchez said...

Since New Zealand was mentioned as one of the few countries where the (mis)leading indicator fell in March, here's an NZ perspective on how unreliable these things can be.

There are only six series that go into the NZ index, which appear to have been chosen more for the length of their history than for their predictive powers. Of those six, only three are published monthly, and only two of those are yet available for March. The third - retail sales - is likely to record a strong increase. As for the three quarterly series, one of them - the number of unemployed less than 1 month - has just recorded its steepest fall in history.

So the recent history of this indicator is almost certain to be revised higher next month - how convenient for a "leading" indicator...

At 5/11/2010 8:57 PM, Anonymous Anonymous said...

Thanks for report on NZ.Keep it coming.

At 5/11/2010 11:36 PM, Blogger Ron H. said...

morganovich at 08:31 has this right. The only item I might add is the disastrous effect of mark-to-market accounting rules that caused otherwise viable institutions to become technically insolvent overnight when they were forced to revalue some of their holdings in mortgage backed securities as those assets were sold elsewhere at distressed prices.

At 5/12/2010 2:22 AM, Blogger PeakTrader said...

Ron, it was a systemic problem, similar to a run on banks:

Cayne Blames Market Forces for Bear Stearns Collapse
May 05, 2010

James “Jimmy” Cayne, the former chairman and chief executive officer of Bear Stearns Cos., blamed market forces and investors betting against his firm for its collapse in 2008.

“The market’s loss of confidence, even though it was unjustified and irrational, became a self-fulfilling prophecy.”

Cayne and Schwartz said Bear Stearns had better risk management than many of its competitors. Schwartz told the panel the firm was well capitalized and blamed its failure partly on market rumors and speculation. He called Bear Stearns “the first firm to fall victim to the credit and liquidity crisis.”

“I do not believe there were any reasonable steps we could have taken, short of selling the firm, to prevent the collapse,” Cayne said in his testimony.

At 5/12/2010 11:40 AM, Blogger Ron H. said...


>"Ron, it was a systemic problem, similar to a run on banks:"

Yes, I agree. It eventually became obvious to enough people that the overheated, booming economy, and credit bubble, couldn't be sustained, and the house of cards collapsed.

>"James “Jimmy” Cayne, the former chairman and chief executive officer of Bear Stearns Cos., blamed market forces and investors betting against his firm for its collapse in 2008."

>"The market’s loss of confidence, even though it was unjustified and irrational, became a self-fulfilling prophecy."

In other words, "It wasn't my fault". Here we have a guy who as CEO, has failed, and lost his firm. He may not be the best source of insight into the problem.

For another viewpoint see what Peter Schiff had to say in 2002 and 2005

At 5/12/2010 4:40 PM, Blogger PeakTrader said...

Ron, there seems to be a contradiction of agreeing it was a systemic problem, and then blaming Bear Stearns in particular.

Schiff reminds me of a broken clock.

At 5/12/2010 10:57 PM, Blogger Ron H. said...

Peak, I wasn't blaming Bear Stearns, I was repeating your quote of James Cayne, who said, in effect, "It wasn't my fault Bear Stearns failed. It was those irrational and needlessly pessimistic investors that did us in."

It would seem that Peter Schiff was warning for a long time about things that have since come to pass.

If you don't like, Schiff, then who, if anyone, do you believe has most accurately forecast our current predicament?

Are there any economists you currently believe are worth following? (In addition to our host, of course.):-)

At 5/13/2010 1:45 AM, Blogger PeakTrader said...

Ron, most economists can explain with great detail and accuracy the bark on a tree, but can't see the forest. Then there's the problem of their (predetermined or fixed) value judgements.

I try to just put the square pegs into the square holes, etc., instead of the round pegs into the square holes, etc.

The country is going almost completely in the wrong direction, given the economic situation. I think, most people sense we're heading in the wrong direction, but I doubt they realize the magnitude or understand the extent of the consequences.

At 5/13/2010 3:09 AM, Blogger Ron H. said...

This comment has been removed by the author.

At 5/13/2010 3:28 AM, Blogger Ron H. said...

I think we agree just about 99%. I especially like the 'bark on the tree' comment.

I too feel the country is going in the wrong direction. It seems that everything government does these days is the exact opposite of what is needed.

The difference between our outlooks may be only the degree to which we believe government involvement in the economy is a good thing. I personally feel that it is almost always bad.


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