Friday, December 10, 2004

Reading leading economic indicators is a bit like reading tea leaves. However, when the tea leaves all line up in a big down-pointing arrow, it may be time to take this form of divination a bit more seriously.
Slowing expansion lies ahead in the OECD area according to the latest composite leading indicators (CLIs). October data showed continued weakening performance in the CLI's six month rate of change for the United States, Canada, Japan and Germany. . . .

The CLI for the United States decreased by 0.1 point in October and its six-month rate of change fell sharply for the tenth month in a row after nine consecutive months of strong increases. The Euro area's CLI rose by 0.2 point in October though its six-month rate of change has shown a downward trend since December 2003. In October, the CLI for Japan fell by 0.3 point and its six-month rate of change decreased for the ninth month in a row.
The chart from the OECD report shows a mighty slide for the US, from a 12.0% rate of change in December 2003 to 0.2% in October 2004. Japan is already in negative territory and the US seems sure to reach it next month.

The last time the US was in this position was in mid-2002; by 2002:IV, US GDP was growing at a 0.7% annual rate. Before that, the US crossed the zero line on a downwards trajectory in mid-2000; the country saw the first of three quarters of negative growth in 2000:III.

Who knows -- the US may pull out of this descent yet. However, the Conference Board's leading indicators are saying exactly the same thing.

Clearly something unpleasant is on its way.


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