CLI Shows Signs Of A Peak In US Economy

The OECD composite leading indicators for August suggest that economic expansion is continuing to slow down. The CLI decreased by 0.1 point in August for the fourth month in a row. A downturn is expected in Canada, France, UK, Italy, Brazil, India and China. Expansion is indicated for Germany, Japan and Russia. The US is showing signs of a peak in economic activity.

Expansion Slowdown Expected To Continue

The slowdown in economic expansion is set to continue according to the OECD Composite Leading Indicators for May 2010. The deceleration continued into the 10th month with an increase of 0.1% point.

France, Italy, China and India seem to have reached a peak in the growth cycle and signs of a peak are emerging in Canada the UK and Brazil. Ongoing expansion is still taking place in Germany, Japan, the US and Russia but at a slower pace. The ASEAN coutries are generally gaining momentum of recovery.

Employment Position Of Disadvantaged Groups Has Improved

Most of the groups who face barriers to work have increased their position relative to the rest of the workforce over the last 10-15 years according to the Economic and Labour Market Review from the ONS.

The Public Service Agreements 2007 identified six groups as facing barriers in employment: the disabled, lone parents, ethnic minorities, the over 50s, the lowest qualified and those living in the most deprived local authority wards. The gap closed most was for lone parents who were only 17 percentage points behind the rest of the population in 2009 compared with 30 points in 1997. The disabled gap has closed to 31 percentage points in 2009 from 41 in 1998. Those in deprived areas saw little change between 2003 and 2009.

The only group for whom the gap widened was those with the lowest qualifications increasing from 17 to 22 percentge points between 1995 and 2009. The workforce has become better qualified since then and fewer peole are in that category now.

The report also suggests that those who are in more than one disadvantaged group are less likely to be employed. The employment rate for those who are not in any disadvantaged group was 82%, for those in one disadvantaged group it was 75%, in two groups 62% and for those in five or six disadvantaged groups the employment rate went down to 15%. People are also more likely to become economically inactive rather than unemployed the more disadvantaged groups they are in. The proportion of the population that were unemployed did not change much according to the number of disadvantaged groups a person was in, 5.1% to 8.2% for those in five or six groups, but the economically inactive increased from 12% to 77% for those in five or six groups.

Small Businesses Patenting Activity Is Important

One of the articles in the Economic and Labour Market Review focuses on patents and intellectual property rights and it tells us that small businesses are as important as large businesses in patenting activity. Small businesses accounted for 40% of live patents and large busineses 44%. Medium sized businesses accounted for only 16% of patents. The article matches data from ONS Business Structure Database (BSD) firm level data and data from Intellectual Property Office (IPO). As well as matching data at the firm level it also analyzes regional data according to the NUTS2 system. London and the South East have the most of patents, and there were also large numbers in East Wales and Eastern Scotland (Cardiff and Edinburgh areas).

OECD Survey Indicates Recovery

The OECD report that all major economies are pointing to recovery with France and Italy even pointing to potential expansion. The signs of potential expansion should be treated with care.

The OECD area leading indicator increased by 1.5% in August 2009 and was 0.6% higher than August 2008. The three main economies, the US, the 'eurozone', and Japan all reported increases in their indicators for August. The US increased by 1.6%, the euro area by 1.7% and Japan by 1.3%. Compared to last year however the US was 1.6% down, Japan was 3.9% down, but the euro area was 4.1% up. The UK increased by 1.6% in August and by 1.7% on last year. France increased by 1.3% in August and 6.6% on last year and Italy by 2% in August and 10.4% higher than last year. Germany increased by 2.4% in August and by 2.1% on last year.

The major emerging economies also increased in August. China increased by 1.5% and India by 0.9%. India was also 0.1% higher than last year whereas China was 0.7% lower. Russia increased by 1.1%, 10.2% down on last year. Brazil increased by 0.4% but was 8.5% lower than last year.

The OECD indicators are constructed from data that have similar fluctuations to the business cycle but precede it. Whereas the business cycle uses GDP data, the OECD use indices of industrial production.

CPI Falls In August

The Consumer Prices Index (CPI) was to 1.6% in August down from 1.8% in July. The factors that contributed most to the downward effect were gas and electricity. Prices in both sectors changed little or not at all this year but rose significantly last year. Another large effect cam from food and non-alcoholic beverages. Food prices were the main factor where prices decreased at their fastest rate for this time of year since 2000. Within the food segment the main factors were fruit, bread, cereals, vegetables and meat.

The largest upward contributor was transport where fuel price rises between July and August and price decreases at record levels last year created the upward effect. Another factor in the transport sector that made a difference was second hand car sales. Prices rose at their fastest ever for this period but fell this time last year. A downward contribution from an increase in fares in European air travel partially offset the trend. The RPI was 1.3%.

The Government target for inflation is 2% in order to maintain economic stability. It is not trying to get the lowest possible rate of inflation. As stability is the aim fluctuations below the target are as unwanted as those above it. The figure of 2% is a figure aimed at by most of the economies around the world. The UK statistics compare well to those for the US and the EU as a whole.

Signs Of Economic Recovery Getting Stronger

OECD statistics for July are pointing to a broad economic recovery across all of the G7 countries. France, Italy and the UK are especially encouraging as the signs are that the main indicators in these economies are higher than this time last year. Most other countries indicators are better also showing signs of recovery but still lower than last year and there are signs of a trough appearing in Brazil. There are also signs of recovery in China, India and Russia. The OECD CLI increased 1.5 points in July, 1.9 points lower than July 2008. The euro area CLI increased by 1.9 points, 1.4 points higher than a year ago.