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Economic report 

Composite leading indicators point to an easing pace of deterioration in some major economies

The CLI for the OECD area increased by 0.5 point in April 2009 but was 8.3 points lower than in April 2008. The CLI for the United States increased by 0.2 point in April but was 10.8 points lower than a year ago. The Euro area’s CLI increased by 0.8 point in April but stood 6.3 points lower than a year ago. In April, the CLI for Japan increased by 0.1 point but was 11.9 points lower than a year ago.

The CLI for the United Kingdom increased by 0.7 point in April 2009 but was 4.2 points lower than a year ago. The CLI for Canada increased by 0.4 point in April but was 7.6 points lower than a year ago. For France, the CLI increased by 1.2 point in April but was 1.2 point lower than a year ago. The CLI for Germany increased by 0.1 point in April but was 13.4 points lower than a year ago. For Italy, the CLI increased by 2.1 points in April but stood 0.6 point lower than a year ago.

The CLI for China increased 0.9 point in April 2009 but was 8.3 points lower than a year ago. The CLI for India increased by 0.4 point in April 2009 but was 7.9 points lower than in April 2008. The CLI for Russia decreased by 0.3 point in April and was 21.3 points lower than a year ago. In April 2009 the CLI for Brazil decreased by 0.7 point and was 12.8 points lower than a year ago.

*   China, India, Indonesia, Japan and Korea.

** Growth cycle phases of the CLI are defined as follows: expansion (increase above 100), downturn (decrease above 100), slowdown (decrease below 100), recovery (increase below 100). CLI data for 29 OECD member countries and 6 OECD non-member economies available at: http://stats.oecd.org/wbos/default.aspx?datasetcode=MEI_CLI

Table 2: Historical Performance of CLI and Recent Cyclical Turning Points in the Reference Series

* China, India, Indonesia, Japan and Korea

P= provisional (see Methodological Notes on next page)

Purpose

The OECD CLI is designed to provide early signals of turning points in business cycles – fluctuations of economic activity around its long term potential level. The approach, focusing on turning points (peaks and troughs), results in CLIs that provide qualitative rather than quantitative information on short-term economic movements. Four cyclical phases form the basis of this qualitative approach: expansion – CLI increasing and above 100; downturn – CLI decreasing and above 100; slowdown – CLI decreasing and below 100; recovery – CLI increasing and below 100. Although the CLIs attempt to predict movements in the output gap, they should not be interpreted as providing exact forecasts.

Reference Series

OECD CLIs are constructed from economic time series that have similar cyclical fluctuations to those of the business cycle but which precede those of the business cycle. Typically movements in GDP are used as a proxy for the business cycle but, because they are available on a more timely and monthly basis, the OECD CLI system uses instead indices of industrial production (IIP) as proxy reference series. Moreover despite their tendency towards higher volatility historical turning points of IIPs coincide well with those of GDP for most OECD countries. Table 2, above, shows recent turning points in the reference series and these are marked provisional until they have been verified with the turning points of de-trended quarterly GDP estimates.

Summary Methodology

The OECD CLIs are composite indicators: with components that target the early stages of production, respond rapidly to changes in economic activity, are sensitive to expectations of future activity or are control variables that measure policy stances. All components are passed through a series of filters before aggregation (seasonal adjustment, trend-removal, smoothing and normalisation). The composite indicator is constructed to: preserve the leading properties of the components, have more stable lead times, and have fewer missed or extra turning-points when compared to the reference series than the components alone. The historical performance (lead/lag at turning points) of the CLIs for individual countries and areas are set out in Table 2.

More information on methodology is available in the following document: “OECD system of composite leading indicators”.

Data

A large set of component series, selected from a wide range of economic indicators, are used in constructing CLIs (224 series are used in total, about 5-10 for each country). CLIs are calculated for 29 OECD countries and 9 zones. They are calculated in three forms: amplitude adjusted, trend-restored, and year-on-year growth rate. These are comparable, respectively, with the de-trended reference series, the original reference series and the year-on-year growth rate of the reference series. The press release focuses on the amplitude adjusted form of the CLI, and includes the major countries and zones.

Access to time series data and methodological information for OECD Composite Leading Indicators (CLI) and Consumer and Business Confidence Indicators is provided by the OECD Business Cycle Analysis Database available at the OECD web site at here .

The OECD-Total covers the following 29 countries: Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Japan, Korea, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Spain, Sweden, Switzerland, Turkey, United Kingdom, and United States.

The G7 area covers Canada, France, Germany, Italy, Japan, United Kingdom and United States.
The Euro area (only Euro area countries that are members of OECD) covers the following 12 countries: Austria, Belgium, Finland, France, Germany, Greece, Italy, Ireland, Luxembourg, the Netherlands, Portugal, Slovak Republic and Spain.

The major five Asia area covers China, India, Indonesia, Japan and Korea.