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OECD leading indicator preview: further weakness

Posted on Thursday, April 4, 2019 at 03:50PM by Registered CommenterSimon Ward | CommentsPost a Comment

A February update of the OECD’s leading indicators is due next week*. Calculations here suggest that the G7 composite indicator fell further, signalling a continuation of below-trend GDP expansion – see first chart. This could temper market optimism that global economic weakness is starting to abate, following a boost to such hopes from this week’s stronger-than-expected Chinese PMI results.

With regard to the latter, some caution is in order. Official (NBS) manufacturing PMI survey results, though supposedly seasonally adjusted, tend to strengthen in March. The new orders index, for example, rose from 50.6 to 51.6 last month but the average March increase over 2010-18 was 1.9 points. The index fell in only one of the nine years.

The second chart compares the published data with the output of a standard seasonal adjustment programme. The double-adjusted series was little changed last month and below the published level.

The procedure used does not adjust for the changing date of the Lunar New Year holiday. Timings were similar to 2018 / 2019 in 2015 / 2016. The published series rose from 48.6 to 51.4 between February and March 2016 but fell slightly in each of the next four months, reaching 50.4 in July. Policy was being eased in late 2015 / early 2016 and narrow money growth was much stronger than now.

A sceptical view of the China reflation story will be maintained here pending a convincing acceleration in narrow money. Even if upcoming March numbers confirm such a pick-up, a significant recovery in economic momentum may be delayed until late 2019.

*The February indicators incorporate component data through March, where available.

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