OECD Indicators show economic slowdown underway

LeadIndic Jul11.pngThe latest American Chemistry Council (ACC) weekly report has worrying evidence that the global economy may be at a turning point, as stimulus programmes are replaced by austerity.

The chart shows the latest leading indicators from the OECD (Organisation for Economic Co-operation and Development). As the ACC warn:

“The CLI (green line, Composite Leading Indicator) for May points to a slowdown in most major economies and even potential turning points in some economies“.

The CLI provides early signals of turning points between expansions and slowdowns. The ACC add that OECD data now suggests:

“Slowdowns are underway in Canada, France, Germany, Italy, the United Kingdom, Brazil, China and India. In the United States, Japan and Russia tentative signs of turning points in the growth cycle are emerging.”

Today’s level of oil prices has always led to recession in the past. The OECD indicators make it even less likely that ‘this time is different’. And they add to last month’s warning by the US’s best forecaster, Prof Martin Feldstein, who also correctly warned of the 2008 downturn.

This would be no real surprise. Between 1933 – 1982, the US economy was in recession every 4 to 5 years (109 months in 50 years). But 1983-2000 saw the BabyBoomer SuperCycle get under way. Its surge of demand, as the Boomers settled down and had children, meant the economy was in recession for just 8 months in 18 years.

The Fed extended the SuperCycle by pushing up home prices post-2000. This allowed Boomer homeowners to extract $564bn/year via mortgage equity withdrawal between 2001-5, adding ~7% to their disposable income. But now, the Boomers are ageing, as we describe in Chapter 2 of our new free eBook, ‘Boom, Gloom and the New Normal’.

Most chemical company managers have grown up during the SuperCycle. Thus it is understandable that they are not used to the idea of recessions being regular events. But the blog is more and more convinced that today is not a time for ‘stretch targets’.

The next few years could prove extremely challenging for the industry, particuarly if policymakers continue to believe that ‘demographics have nothing to do with demand’.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. He also serves as a Global Expert for the World Economic Forum. The aim of this blog is to share ideas about the influences that may shape the chemical industry and the global economy over the next 12 – 18 months. It looks behind today’s headlines, to understand what may happen next in critical areas such as oil prices, China and Emerging Markets, currencies, autos, housing, economic growth and the environment. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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