G7 leading index fall still consistent with "soft patch"
Simon Ward
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The OECD's G7 leading indicator index fell by a further 0.4% in July, resulting in the six-month rate of change turning negative – see first chart. The index suggests that industrial output will flat-line or weaken into late 2010.
Based on an earlier slowdown in G7 real narrow money, M1, the OECD measure may decline further in August and September – see previous post. Recent M1 reacceleration, however, may presage a trough in the leading index this autumn, in turn implying that the recovery in industrial output will resume by early 2011.
In contrast to the G7 measure, a leading index covering seven large emerging economies (the "E7") rose by 0.4% in July. The six-month change slowed further but remains consistent with respectable output expansion – second chart.
While the G7 index registered a larger monthly fall in July, E7 monthly momentum seems to be stabilising – third chart. This could be significant since the E7 change led that of the G7 by a month at the trough of the recession and by two months at the 2009 growth peak. Stabilising E7 monthly momentum, in other words, could be a precursor of a slower decline in the G7 index, consistent with the autumn trough suggested by monetary trends.
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