According to Bills Evans at Westpac, the Westpac- Melbourne Institute Leading Index growth rate remains in deep negative territory consistent with an economic recession, despite the sight improvement.
“The six- month annualized growth rate in the Westpac- Melbourne Institute Leading Index, which indicates the likely pace of economic activity relative to trend three to nine months into the future, rose from -5.08% in April to -4.79% in May.
Two components account for the bulk of the 4.5ppt slump: US industrial production (–3.3ppts) and aggregate monthly hours worked (–1.8ppts).
Both have been directly impacted by the COVID-19 health emergency and associated shutdowns – US industrial production plunged 15.3% between February and April, and hours worked in Australia dropped by 9.2% in the April month alone.
Equity markets have provided an additional 0.6ppt drag although the S&P/ASX 200 has now clawed back about a third of the sharp sell-off in February–March.
Other components have seen net improvements over the last six months, adding to the Index growth rate. The most notable positive contributions have been from commodity prices, measured in AUD terms (+0.5ppts); the yield spread (+0.2ppts); and Consumer Unemployment Expectations (+0.2ppts) – the latter dropping sharply in March-April only to regain all of these losses in the last few months.”