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The composite leading economic indicator (LEI) climbed to 0.456 in the first quarter of 2008 from 0.368 in the fourth quarter of 2007, maintaining its upward track which started in the third quarter of 2006 (Figure 1 and Table 3). The ascent, however is slower than the impressively steep rise recorded during the fourth quarter of 2007.  This indicates that the record-shattering growth during the fourth quarter may not be maintained in the first quarter of 2008.

Figure 1 below shows the direction of the composite LEI vis-à-vis the movement of the cycle component of the reference series - the non-agriculture gross value added (GVA).

Figure 1.  Composite leading economic indicator (LEI) versus the
cycle component of non-agriculture GVA: Q3 1984 to Q1 2008

Of the eleven indicators¹ that make up the composite LEI, five contributed positively to the LEI for the first quarter of 2008. The positive contributors, beginning with the largest positive contributor, were: stock price index, merchandise imports, exchange rate, wholesale price index and tourist arrivals. The negative contributors, beginning with the largest negative contributor, were: money supply, hotel occupancy rate, consumer price index, terms of trade index, electric energy consumption, and new businesses (Table 1). Positive contributors accounted for 69.0 percent of total contribution, while negative contributors recorded a 31.0 percent share. The share of the positive contributors dropped to 69.0 from 78.8 percent in the fourth quarter of 2007.

The contribution of each of the eleven (11) indicators is measured through the combined effects of the: 1) direction (the slope or change) of the cycle component of each of the indicators; and 2) correlation of their cycle components with that of the GDP for industry and services.

Table 1 shows the share to total contribution of the positive and negative contributors.

Table 1. Contributions of the leading economic indicators: First quarter 2008 LEIS

Indicator	Slope (Q1 2008  - Q4 2007)	Correlation coefficient	Contribution 1/	Share to total contribution 3/( % )	Rank 5/
					positive contributors	negative contributors
Money supply	(0.810)	0.527	(0.427)	16.7	na	1
Hotel occupancy rate	(0.257)	0.705	(0.181)	7.1	na	2
Consumer price index *	0.261	(0.453)	(0.118)	4.6	na	3
Terms of trade index*	0.211	(0.272)	(0.058)	2.3	na	4
Electric energy consumption	(0.017)	0.277	(0.005)	0.2	na	5
New businesses	(0.007)	0.472	(0.003)	0.1	na	6
Stock price index	1.966	0.472	0.927	36.3	1	na
Total merchandise imports	0.634	0.500	0.317	12.4	2	na
Foreign exchange rate *	(0.416)	(0.692)	0.288	11.3	3	na
Wholesale price index	0.544	0.317	0.172	6.8	4	na
Tourist arrivals	0.102	0.553	0.056	2.2	5	na
Total Contribution 2/			2.55
Share to total contribution 4/ ( % )				100.0	69.0	31.0

Notes * Inverse relationship with GDP.

^1/ Contribution = slope x correlation coefficient
^2/ Total contribution = summation of the absolute values of contribution.
^3/ Share to total contribution = percentage share of the contribution of each indicator to total contribution.
^4/ Share to total contribution = percentage share of contributors by type of contribution.
^5/ Rank = rank of the indicators in contribution, 1 being the highest.

The top two positive contributors, namely, stock price index and merchandise imports, contributed 48.7 percent keeping the composite LEI afloat during the period. Stock price index has consistently topped the positive contributors since the first quarter of 2007 (Table 1a).

On the other hand, money supply and hotel occupancy topped the negative contributors in pulling the composite LEI down in the first quarter of 2008. The combined negative contributions of these 2 indicators amounted to 23.8 percent of total contribution for the period. Hotel occupancy rate and electric energy consumption has constantly pushed down the index since the first quarter of 2007.

Table 1a.Contribution direction² of the leading economic indicators: Q1 2007 - Q1 2008

Positive contributors
Q1 2007	Q2 2007	Q3 2007	Q4 2007	Q1 2008
Stock price index	Stock price index	Stock price index	Stock price index	Stock price index
Foreign exchange rate	Foreign exchange rate	Money supply	Total merchandise imports	Total merchandise imports
Money supply	Money supply	Consumer price index	Consumer price index	Foreign exchange rate
New businesses	Consumer price index	Foreign exchange rate	Foreign exchange rate	Wholesale price index
	Total merchandise imports	Wholesale price index	Money supply	Tourist arrivals
	Tourist arrivals	Tourist arrivals	Wholesale price index
	Terms of trade index	Terms of trade index	New businesses
	New businesses
Negative contributors
Q1 2007	Q2 2007	Q3 2007	Q4 2007	Q1 2008
Tourist arrivals	Hotel occupancy rate	Hotel occupancy rate	Electric energy consumption	Money supply
Electric energy consumption	Electric energy consumption	Total merchandise imports	Hotel occupancy rate	Hotel occupancy rate
Hotel occupancy rate	Wholesale price index	Electric energy consumption	Terms of trade index	Consumer price index
Wholesale price index		New businesses	Tourist arrivals	Terms of trade index
Total merchandise imports				Electric energy consumption
Consumer price index				New businesses
Terms of trade index

The following plots show data on the levels and cycles of the top two positive and negative contributors in the composite LEI for the first quarter of 2008, truncated based on the indicators’ lead periods (Table 2).

Positive contributors

1) Stock price index

Save for a major downtick recorded for the fourth quarter of 2005 and a slight decrease in the third quarter of 2006, the stock price index, which has a lead period of two quarters, sustains an upward trend and had been steadily improving since the first quarter of 2003.

2)   Merchandise imports

The FOB value of total merchandise imports, which has a lead period of one quarter, expanded by 7.1 percent in the fourth quarter of 2007, to 14.30 billion USD³ from previous year’s 13.35 billion USD of the same quarter. The opposing direction between the merchandise import levels and its cycle can be explained by some factors such as seasonality and irregularity which are still present in the original series (imports levels) but are no longer included in the merchandise import cycle.

Negative contributors

1)   Money supply

Money supply⁴, as measured by M1, or currency in circulation and peso deposits subject to check of the monetary system, decelerated in the last quarter of 2007, registering only 10.8 percent year-on-year growth, the lowest in 2007.  The growth rates of money supply for the first 3 quarters of 2007 were recorded at 28.3 percent, 26.7 percent, and 18.2 percent for the first, second and third quarters, respectively. Money supply has a lead period of one quarter.  The opposing direction between the money supply levels and its cycle can be explained by some factors such as seasonality and irregularity which are still present in the money supply levels but are no longer included in the money supply cycle.

2)    Hotel occupancy rate

Hotel occupancy, with a lead period of six months tended to pull down the first quarter 2008 LEI as the average occupancy rate at major hotels in Metro Manila was sluggish, growing only by 1.4 percentage points to 69.6 percent in the third quarter of 2006 from last year’s 68.2 percent in the comparable period.

Table 2 shows the cycle estimates for the 11 indicators for the fourth quarter of 2007 and first quarter 2008 (concurrently estimated for the revised/updated fourth quarter LEI), their corresponding slopes, correlation coefficients, contribution values and lead periods. 

Table 2.  Cycles, Slopes, Correlation Coefficients, and Lead Periods of the
11 Leading Indicators with the Non-Agriculture GVA

Indicators		Direction			Correlation factor *	Contribution	Lead Period (quarter)
		Cycle, Q1-2008	Cycle, Q4- 2007	Slope (Q1 2008 - Q4 2007)
1.	Terms of Trade Index **	(0.130)	(0.341)	0.211	(0.272)	(0.058)	1
2.	Money supply	1.438	2.248	(0.810)	0.527	(0.427)	1
3.	Total merchandise imports	0.552	(0.081)	0.634	0.500	0.317	1
4.	Tourist arrivals	0.437	0.335	0.102	0.553	0.056	1
5.	Electric energy consumption	(2.263)	(2.246)	(0.017)	0.277	(0.005)	2
6.	Foreign exchange rate **	(2.166)	(1.749)	(0.416)	(0.692)	0.288	2
7.	Number of new business incorporations	(0.263)	(0.256)	(0.007)	0.472	(0.003)	2
8.	Stock Price Index	6.420	4.454	1.966	0.472	0.927	2
9.	Hotel occupancy rate	(0.217)	0.041	(0.257)	0.705	(0.181)	6
10.	Consumer Price Index **	0.591	0.330	0.261	(0.453)	(0.118)	10
11.	Wholesale Price Index	1.086	0.543	0.544	0.317	0.172	10

Notes: * = Statistically significant at 0.05 percent level and highest correlation coefficient which corresponds to indicated lead period.
**  = Inverse relationship with GDP.

Table 3 below shows the composite LEI estimates and the corresponding slopes for the most recent years - first quarter 2000 to first quarter 2008. Figure 2 plots the composite LEI against the non-agriculture GVA cycle for the same period.

Period	Composite LEI	Slope
2000 Q1	0.076	0.107
Q2	0.171	0.094
Q3	0.144	(0.026)
Q4	0.039	(0.105)
2001 Q1	(0.071)	(0.110)
Q2	(0.127)	(0.057)
Q3	(0.191)	(0.064)
Q4	(0.340)	(0.149)
2002 Q1	(0.424)	(0.084)
Q2	(0.267)	0.157
Q3	(0.041)	0.226
Q4	0.014	0.055
2003 Q1	(0.096)	(0.110)
Q2	(0.245)	(0.149)
Q3	(0.270)	(0.025)
Q4	(0.141)	0.129
2004 Q1	(0.005)	0.136
Q2	(0.021)	(0.016)
Q3	(0.105)	(0.084)
Q4	(0.143)	(0.037)
2005 Q1	(0.122)	0.021
Q2	(0.068)	0.054
Q3	(0.032)	0.036
Q4	(0.038)	(0.007)
2006 Q1	(0.097)	(0.059)
Q2	(0.100)	(0.003)
Q3	(0.045)	0.054
Q4	0.019	0.065
2007 Q1	0.115	0.095
Q2	0.202	0.087
Q3	0.257	0.055
Q4	0.368	0.110
2008 Q1	0.456	0.088

Figure 2.  Composite LEI vs Non-Agri GVA cycle
                Q1 2000 to Q1 2008

Table 4 shows the updated estimates of the composite LEI for all quarters of 2006 and 2007.

Quarter	As first released	Updated as of Q1 2008 LEI report	Difference
Q1 2006	0.155	(0.097)	(0.252)
Q2 2006	0.222	(0.100)	(0.322)
Q3 2006	0.072	(0.045)	(0.117)
Q4 2006	0.120	0.019	(0.100)
Q1 2007	0.170	0.115	(0.055)
Q2 2007	0.294	0.202	(0.092)
Q3 2007	0.407	0.257	(0.150)
Q4 2007	0.286	0.368	0.082

The composite LEI for Q4 2007 was revised upwards by 0.082. 

The composite LEI for all quarters of 2006 and 2007 were released as follows:

Q1 2006 - 1 February 2006
Q2 2006 - 2 May 2006 
Q3 2006 - 31 July 2006
Q4 2006 - 21 November 2006
Q1 2007 - 28 February 2007
Q2 2007 - 17 May 2007
Q3 2007 - 17 August 2007
Q4 2007 - 13 December 2007

 

___________________________

¹ Refer to Section D of the Technical Notes for brief descriptions of the 11 leading economic indicators. The Technical Notes contains the general procedure in computing the composite LEI (Section B.) and the schedule of data used/required in the seasonal adjustment of the 11 leading indicators and the computation of the composite LEI (Section C/Table 5).

² The contribution direction (i.e., negative or positive contribution) of each of the eleven indicators may change every quarter as the LEI is estimated. For this quarter, the indicators that changed their contribution direction from fourth quarter 2007 LEIS to the first quarter 2008 LEIS are as follows:

From negative to positive contribution
           1/ Tourist arrivals
From positive to negative contribution
           1/ Money supply
           2/ Consumer price index
           3/ New businesses

³ Q4 2007 figure for Total merchandise imports was estimated using the X11 ARIMA program. See section C of Technical notes for more information on estimated and forecasted data.

⁴ Real money supply (real M1) is used in the LEI. The quarterly figures are that of the last month of the reference quarter (e.g., December levels for Q4) and are computed as the ratio of money supply M1 over CPI multiplied by 100. See Section C of the Technical notes for more information on the data.

 

 

 

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