Quebec economy: modest to moderate growth in the coming months

The recent evolution of the Desjardins Leading Index (DLI) lets believe that Quebec economy expands now at a pace going from modest to moderate, and that it will follow a similar trend in the coming months. The most recent data and analysis on the DLI were published October 13.

Slower growth in the OECD area in the coming months

Monthly leading indicators published October 8 by the OECD point to slower growth in the coming months in that area, but the euro zone economic outlook should be stable.

Source: http://www.oecd.org/std/leading-indicators/CLI-Oct15.pdf

World economy: its growth is weaker than expected

Three reliable sources show that the world economy grows at a slower pace than what was expected a few months ago, and that this trend could continue in the coming months:

OECD September 8 news release on composite leading indicators:
http://www.oecd.org/std/leading-indicators/composite-leading-indicators-cli-oecd-september-2015.htm

IMF staff briefing note in preparation to the  September 4-5 G-20 meeting:
http://www.imf.org/external/np/g20/090415.htm

Markit Economics September 3 press release on the J.P. Morgan Global Manufacturing & Services PMI:
http://www.markiteconomics.com/Survey//PressRelease.mvc/8ae9460470fc42aa85ed4b394308f420

Scenario of slow growth for Canada

OECD leading indicators for Canada suggest again slow growth in economic activity in the coming months. The most recent data were published September 8.
 

 
 
 
 

United States economy: moderate growth in the coming months

The american economy should grow at a moderate pace until the end of this year, according to the recent evolution of the Conference Board Leading Economic Index for that country.

US real GDP grew at approximatively 2.5% (annual rate) during the second quarter and stagnated in the first (-0.2% annual rate).

Link to the Conference Board Internet page:
https://www.conference-board.org/data/bcicountry.cfm?cid=1

July 30 update:

US real GDP growth for the second quarter is estimated at 2.3% (annual rate) according to data released today by the Bureau of Economic Analysis. The first quarter was revised to 0.6% growth.

Quebec economic outlook: slight improvement, according to the DLI

The Desjardins Leading Index (DLI) increased by 0.3% in May, like in March, but it stagnated in April, according to the analysis published July 21 on  Desjardins' Internet page. The DLI evolution suggests a slight improvement for Quebec's economy in the coming months. Quebec real GDP by industry stagnated last February and contracted in March (-0,1%) and April (-0,4%), according to l'Institut de la statistique du Québec.

Link to the DLI analysis:
http://www.desjardins.com/ressources/pdf/ipd1507-e.pdf?resVer=1437502331000

Is the Stock Market a Leading Economic Indicator?

Paul A. Samuelson wrote in 1966: “The stock market has predicted nine of the last five recessions”. But the eminent economist sarcasm was not sufficient to end that indicator reliability as a leading indicator of business cycles turning points.

 

To be retained as a leading indicator, a variable must have a significant importance in the economy. It must also pass the test of time: having historically demonstrated that it precedes by a few months the economic cycle peaks and troughs. Stock prices, even if they fluctuate for many reasons, seem to satisfy those conditions for many economies.

 

At the OECD, stock market indexes are recognized as one of the leading indicators for 27 of the 39 countries for which this organization calculates monthly composite leading indicators. The Conference Board publishes monthly leading economic indexes for 12 countries and the euro area; only the index for China does not include the stock market as a leading indicator. The Japan Cabinet Office, the Conference Board of Canada and Desjardins also retain stock prices as a leading indicator respectively for Japan, Canada and Quebec economies.

 

Moreover, the authors of box 1.3 of the IMF September 2011 World Economic Outlook ask the following question: “Are Equity Price Drops Harbingers of Recession?” To answer it, they looked at the G7 countries. Their methodology and their analysis showed that for the United States, the United Kingdom, France and Japan, “… from the first quarter of 1970 through the first half of 2011, …real equity prices in these economies are useful predictors of recessions.” They add: “For Canada and Germany, there is no evidence that equity prices aid in predicting recessions, whereas for Italy, their predictive power is consistently superseded by the inclusion of additional financial market variables.” The authors conclude that: “These findings suggest that policymakers should be mindful of sharp drops in equity prices because they are associated with an increased risk of a new recession.” 

 

Then, even if they are not infallible, stock prices indexes are legitimate leading indicators for many economies.

 

Link to the OECD list of leading indicators by country: http://www.oecd.org/std/leading-indicators/CLI-components-and-turning-points.pdf

 

Link to the Conference Board Internet section on leading economic indicators:

http://www.conference-board.org/data/bci.cfm

 

Link to the September 2011 IMF World Economic Outlook:

http://www.imf.org/external/pubs/ft/weo/2011/02/