Sluggish U.S. Economic Outlook Suggests Higher Risk of North American Recession
John Clinkard
The October 2007 Composite Leading Indicator (CLI) from the Organization for Economic Cooperation and Development (OECD) points to a continued weak outlook for the economies of the major OECD member countries.
According to the OECD, the recent pattern of leading indicators suggests that most of the major developed countries are likely to experience slower economic growth in 2008.
Japan, Germany, Italy, France and the United States — Downturn or Slowdown
In particular, Japan, Germany, Italy, France and the United States are expected to see some degree of downturn or slowdown:
- Japan’s CLI has fallen by 8.5% over the past 12 months;
- Germany’s CLI has fallen by 3%, indicating a “downturn” in economic activity;
- Italy’s CLI is down by 2.1%, a figure that suggests a “slowdown”;
- France’s CLI dropped 1.2%, pointing to a “moderate slowdown” in economic growth; and
- The U.S. CLI is off by 0.5%, signaling a “moderate downturn” ahead.
Canada — Slower Growth Ahead
In Canada, both the Statistics Canada Composite Leading Indicator and the OECD Composite Leading Indicator appear to be sending a similar message. In November 2007, year-over-year growth of the Statistics Canada Composite Leading Indicator slowed for the second consecutive month, while the OECD CLI was unchanged year over year in October. While the most recent readings on both indicators are still solidly in positive territory, each appears to be pointing to slower growth ahead.
It should be emphasized that, while both of these indicators foreshadow lacklustre growth for the overall economy, the near-term outlook for domestic spending is still positive. This outlook can be attributed to recently announced tax cuts and lower interest rates, which have resulted in strong growth of employment over the past several months.
Risk of North American Recession Increases
The prospects for Canada’s exports, already bruised by the strong Canadian dollar versus the U.S. dollar, are much less positive in light of increasing evidence that the collapse of the U.S. housing market is hurting the general health of the U.S. economy.
While neither the Statistics Canada nor OECD’s leading indicators suggest that a recession in Canada is imminent, the deterioration in the U.S. outlook suggests that the risk of a North American recession is now higher than it has been since the start of the current cycle in late 2001.
