2/1/2012: Latest Composite Leading Indicators for Q4 2011

Latest leading economic indicators for Q4 2011 for OECD are not showing any real signs of economic recovery for the euro area. Here are some of the details (please note, data is through October, so forward signal is for November-December 2011).

For Australia, Q4 2011 indicator is now down at 100.55 against Q3 2011 reading of 100.80. 3mo MA is 100.71 against previous 3mo MA of 100.89. For comparative purposes, 2007 average reading was 101.96, 2009 average of 96.07 and 2010 average 101.13. 2011 average to-date is 100.99.

Canada's CLI is at 99.66, ahead of Q3 2011 reading of 99.42. 3mo MA is at 99.62 and previous 3mo MA was 100.72. 2011 average to-date is 100.90, well behind 102.13 average for 2010 and 101.26 average in 2007.

France current reading is at 98.13 slightly behind Q3 2011 at 98.60. 3mo MA is at 98.69, behind previous 3mo MA of 100.96. 2011-to-date average is at 101.16, behind 2010 average of 103.38 and 2007 average of 101.37.

Germany's current reading is at 98.28, down from 99.10 in Q3 2011 with current 3mo MA at 99.26, down from the previous 3mo MA of 102.93 - one of the highest rates of slowdown at 3.57%. 2011-to-date average is at 102.77, down from 2010 average of 104.08 and 2007 average of 103.96.

Ireland (for our local interest) is at 96.99 against Q3 2011 of 96.19 - one of the handful of countries (such as Greece) that shows some improvement. 3mo MA is at 100.40 against previous 3mo MA of 101.00. 2011-to-date reading is at 100.94 against 2010 average of 99.74 and 2007 average of 105.28.

Italy is currently reading at 96.55, down from 97.47 in Q3 2011. Current 3mo MA is at 97.50 down from 100.46 for previous 3mo MA - a decline of 2.95%. 2011-to-date average is 100.58 against 2010 average of 103.93 and 2007 average of 101.69.

Japan current reading is at 101.33 against previous reading of 101.55. 3mo MA at 101.62 down from 102.69 for previous 3mo MA. 2011-to-date average is 102.65 against 2010 average of 100.78 and 2007 average of 102.29.

Spain latest reading is 100.16 against previous reading of 100.65. 3mo MA is at 100.52 against previous 3mo MA of 101.18 and 2011-to-date average is at 101.38 against 2010 average of 102.86 and 2007 average of 102.52.

UK current reading is at 98.64 against previous reading of 99.01, with current 3mo MA of 99.14 against previous 3mo MA of 101.13 (-1.96%). 2011-to-date average is at 101.02 against 2010 average of 103.14 and 2007 average of 102.13.

US current reading is at 100.95 down from the previous reading of 101.25. 3mo MA is at 101.24, down from previous 3mo MA of 102.37 (-1.11%). 2011-to-date average is at 102.20 and 2010 average was 100.39, while 2007 average was 103.20.

In terms of EA17, current reading for the euro area stands at 98.53, down from previous reading of 99.13. 3mo MA currently stands at 99.20 against previous 3mo MA of 101.67 (down 2.43%). 2011-to-date average is at 101.75 against 2010 average of 103.34 and 2007 average of 102.81.

Big Euro Area 4 economies index is now at 98.12, down from the previous reading of 98.77. 3mo MA is at 98.88, down from 101.66 for the previous 3mo MA (-2.74%) and 2011-to-date average is at 101.66, down from 103.77 average for 2010 and 102.44 average for 2007.

Charts to illustrate:

Economics 09/08/2009: Calling a turning point?

Forward looking update: I am working on detailed analysis of the latest ECB data on banks activity survey across the Eurozone, plus Ireland's own Earnings and Labour Costs data for Q4 2008... posts will be coming on these two, so stay tuned.

Now, I am skeptical about the 'Green Shoots' theory primarily for two reasons:

1. Relative to current fundamentals, the markets (equities) are overbought and bonds are at extremely low yields. Two possible scenarios can unfold from here on: Scenario 1 = we get growth in the US in Q3 2009, through Q4 2009 and inflation in Q1 2010. This means preciously little for Europe and Japan. Scenario 2 = we get growth in the US in Q3, then a contraction in Q4, and then out of a recession in Q1-Q2 2010 - a 'correction in the middle' scenario. Inflation will rise in Q2 2010 then. Again, Europe lagging and Japan is stagnating. Either way - I believe inflation is coming and it will be very hard hitting - 5%+ in 2010 as a peak, then up to double digits in 2011. Someone will have to pay for all this cash sloshing around courtesy of the Fed.
2. Real fundamentals - unemployment, personal disposable income, investment and so forth - bar the Government spending and printing presses - are still in a fall.

Now, I am much more comfortable with 6-months scenario of seeing the return to growth - albeit to moderate growth at the very best (especially when it comes to Europe). Here, we have Composite Leading Indicators from the OECD that do a decent job tracking trend (but not inflections necessarily) pointing to some interesting things. That said, I would be not as upbeat as OECD in interpreting these results...

• June 2009 data points to stronger signs of improvement in the economic outlook of OECD economies compared with June.
  
• Strongest recovery signals in Italy and France and clearer signals of troughs in Canada, Germany, the United Kingdom and the United States.
  
• In Japan tentative signs of improvement have also emerged.
  
• Troughs can also be observed in China and India, with tentative trough signals now appearing in Brazil and Russia.

TOk, let's take a look:

• CLI for the OECD area increased by 1.2 point in June 2009 but was 5.0 points lower than in June 2008. Now, note that in the previous recession, the CLI signal as about 1.5 years ahead of actual growth...
• The CLI for the United States increased by 1.3 point in June but was 7.2 points lower than a year ago. The same accuracy for CLI here as in the case of OECD (above) and Euroarea (below) when it comes to timing growth return... Now, note that the US has much better data available than the rest of the world, and here, things are really all over the place. Unemployment is down to 9.4%, but on the back of massive exits from the labour force. Structural unemployment has actually worsened: the number of people out of work longer than six months soared by a record 584,000 to 5 million, accounting for more than a third of all unemployment for the first time on record (chart below). While unemployment fell by 267,000 to 14.5 million, employment fell by 155,000. The labor force declined by 422,000, which means per Marketwatch, "the jobless rate declined because people dropped out of the work force, not because they got jobs". The participation rate fell from 65.7% to 65.5%. Unemployment chart below:There are some signs of improvement on jobs front, however. The average work week rose to 33.1 hours after falling to a record-low 33 hours in June. The average work week in manufacturing (a key leading indicator) rose from 39.5 hours to 39.8 hours. Total hours worked in the private-sector were unchanged. Good news, but one has to put this into perspective - a rise of 0.1 hour on a record low? Average hourly earnings rose by 3 cents, or 0.2%, to $18.56. Even better news, but again - state and local taxes are rising... Disposable income is singing the blues still. Higher working hours might see increased industrial production in Q3. Of 271 industries, 30.1% were hiring on net in July, up from 28.6% in June. In manufacturing, 22.3% of industries were hiring, the highest percentage since September.
  
  
• The Euro area’s CLI increased by 1.5 point in June but stood 1.6 points lower than a year ago. Now, that sounds misleading - as in - we are closer to trend than the US or OECD... true, but the problem, of course is that our trend is soo low, it would be considered a majour downturn for the US economy to run at our long term growth rates...
  

• Oh and take a look at Japan - the sickest economy in the universe. Now, note that those years above 100 - that was actually pure stagnation. Yet, CLI still gunned for growth there.
  

• The CLI for the United Kingdom increased by 1.1 point in June 2009 but was 0.9 point lower than a year ago. The UK is much closer to a recovery, unless, of course we have a double dip as in 2000-2003...
  
• The CLI for Germany increased by 1.7 point in June but was 6.6 points lower than a year ago. To be honest, there is no way the CLI for Germany can stay off the rising path from now on - the sheer collapse of exporting activity there was so deep earlier this year, you would have to put those Germans through another world war to get any worse destruction of productive capacity than we saw. So is CLI really meaningful here at all? And then, spot that double dip in previous episode.
  
• The CLIs for France and Italy, after having increased by 1.4 and 2.2 points respectively in June, are now above the level reached a year ago, by 2.7 points in the case of France and 4.8 points in the case of Italy. Well, France is appearing to do just fine here - national consumption-driven economy (as opposed to the German exporting model) is underpinning more stability in the downside part of the cycle. There is also massive spending by the French government on everything under the sun. But the question is - are we in a double-dip here? Once stimulus runs out, and assuming the Germans are not going to stand by and watch the French issuing more debt in their name, something will have to give. It won't be a devaluation of the Euro, and it won't be unionised wages. And it certainly won't be Sarko cutting his populist spending sprees... Now, Italy is to Europe what Japan is to the world, so frankly, after 30 years of disastrous growth, who cares that Italy is in a 'recovery'? Can they themselves even notice that they are? Without Berlusconi trumpeting around Rome about his super-human manly and stately powers? I'll check in 10 days and will report from there...
  

So here we are.

• In my view, we can call a global recession turning point somewhere around now;
• But the meaning of this statement is hollow unless there is a return to real growth - not the corrective 3-4% for half-a-year and then 1% for the rest of our lives, but 3-5% trend - and this is unlikely, especially given the necessary therapy we will have to undergo to cure inflationary hangover of Obama-nomics, Brownist Monetarism and Trichetisation of the Euro;
• Individually, the US is probably past the turning point now and is accelerating rapidly (though the risk of a double dip, in y view is somewhere around 30% now);
• UK is also past the turning point and probability of a double dip is also around 30%;
• Euroarea is not going to see real growth for years to come and probability of a double dip is around 40%.

The CLI for China increased 1.4 point in June 2009 but was 3.7 points lower than a year ago. The CLI for India increased by 1.2 point in June 2009 but was 3.4 points lower than in June 2008. The CLI for Russia increased by 1.2 point in June but was 17.7 points lower than a year ago. In June 2009 the CLI for Brazil increased by 0.4 point but was 11.4 points lower than a year ago. So BRICs are for now decoupling from each other and there is possibility that a new bubble is forming in equity markets in Brazil and Russia...

Happy hunting.