Global economic indicators still point to slower growth

The past week provided more evidence that economic growth is slowing around the world.

On Friday, the Organisation for Economic Cooperation reported that its composite leading indicator for member countries increased by just 0.1 point in May, the tenth consecutive monthly deceleration.

OECD composite leading indicators
	Ratio to trend, amplitude adjusted					Change from previous month
	2010					2010
	Jan	Feb	Mar	Apr	May	Jan	Feb	Mar	Apr	May
OECD area	102.3	102.9	103.3	103.6	103.7	0.7	0.6	0.4	0.3	0.1
United States	101.3	102.1	102.7	103.2	103.4	0.9	0.8	0.6	0.5	0.2
Euro area	103.4	103.8	104.2	104.5	104.6	0.6	0.5	0.4	0.3	0.1
Japan	101.5	102.2	102.7	103.0	103.1	1.0	0.7	0.5	0.3	0.1

Surveys of purchasing managers around the world showed that industry activity continued to increase in June. However, the rate of increase has slowed as the indices compiled by JPMorgan and Markit showed declines last month.

JPMorgan Global All-Industry Indices
	April	May	June
Output	57.7	57.0	55.4
New orders	56.9	55.3	53.3
Input prices	60.9	59.2	54.5
Employment	50.8	51.4	50.8

Declines in the purchasing managers indices in the United States contributed significantly to the decline in the global index. Last week, the Institute for Supply Management reported that its index of non-manufacturing businesses fell to 53.8 in June from 55.4 in May. The previous week, it had reported that the manufacturing PMI fell to 56.2 last month from 59.7 the month before.

In the euro area, Markit reported that its composite purchasing managers index fell to 56.0 in June from 56.4 in May after its index of services activity in the region fell to 55.5 from 56.2.

Industrial production data from the euro area last week looked better. German industrial production, for example, rose 2.6 percent in May, accelerating from 1.2 percent in April.

Nevertheless, industrial production could still slow. German factory orders declined 0.5 percent in May after having jumped 3.2 percent in April.

Over the past week, however, it was probably Japan that provided the greatest number of indications of slowing growth.

A Cabinet Office report last week showed that Japan's composite coincident index fell to 101.2 in May from 101.3 in April, the first decline since the economy began recovering last year. And lending weight to the OECD data on Japan, the Cabinet Office's own composite leading indicator fell to 98.7 in May, its second consecutive decline, from 101.7 in April.

The Cabinet Office's economy watchers survey showed that the diffusion index for current conditions fell to 47.5 in June, the second consecutive decline, from 47.7 in May. The diffusion index for future conditions fell to 48.3 from 48.7.

Core private-sector machinery orders, an indicator of corporate capital spending, fell 9.1 percent in May, more than reversing a 4.0 percent increase in April.

The current account surplus shrank 34.4 percent in May as exports, a key driver of economic growth, fell 0.5 percent from the previous month.

However, while economic growth is clearly slowing, at the moment, there is still little evidence that the global economy is heading back into recession soon. For example, most of the OECD's composite leading indicators are still rising.

This assessment could change though if the on-going rate of deceleration continues for a few more months.