Today, the Organization for Economic Co-operation and Development (OECD) released their Composite Leading Indicators (CLI) for various countries in the world. It offers interesting insight into the pulse of the global economy. The indicators for the month of November are indicating a downturn in the U.S., Germany and the U.K. The rest of the OECD major countries’ indicators show a moderate slowdown. China’s indicator still shows strong expansion.
You can click on the graph to look at the full report.
Here is a graph of the CLI for the U.S. compared to the GDP and S & P 500 year over year growth in the US since 1955. You can click on the chart for a larger view.
Twice a year, the OECD publishes their Economic Outlook for the world. The last report was published on December 6, 2007. Click here for their synopsis. They predicted that the U.S. will stay out of recession, but lowered their projections on GDP due to three headwinds: housing turmoil, headline inflation, and financial turmoil. They point out that fortunately the headwinds hit us at a time when the economies are strong: world growth and trade growth are robust, profits are high and balance sheets are strong (enterprise saving has exceeded enterprise investment), business confidence was high, and unemployment was the lowest level in decades.
The OECD is projecting weak growth in the U.S. in 1% + range (not a recession) with activity to gradually accelerate mid 2008. They say growth will be dragged down by residential construction which will bottom out in the middle of 2008. Exports will be boosted by dollar depreciation.
They caution that their fairly benign outcome projections hinge on the headwinds not getting worse. In their press conference, the OECD said they don’t dare show their in-house model projections for the first quarter. They had to low ball and adjust downward the projections for the first quarter relative to their indicator models. They say that the risks to the downside are greater than to the upside, especially if any of the three headwinds worsen.
The slowdown isn’t just going to affect the U.S. Moreover, just like the mortgage crisis is not just a “Subprime” crisis, the housing crisis does not look like it will be limited to the U.S. Price to rent and Price to income for housing is elevated all across the world (Germany, Switzerland and Japan excepted).
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