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The composite leading economic indicator (LEI) slid further to negative 0.640 ¹ in the fourth quarter of 2009 from a revised negative 0.570² in the third quarter. However, the descent of the index continued to decelerate confirming earlier signs of the gradual recovery of the economy from the global crisis. Not to be forgotten though are the damages brought by typhoons Ondoy and Pepeng in the last quarter of 2009, which have not been reflected in the latest LEI.

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 Non-Agriculture GVA cycle: Q3 1986 to Q4 2009

The number of positive ³ contributors as concurrently estimated in this period climbed to seven, from three in Q1 2009 and Q2 2009, and four in Q3 2009. The positive contributors, starting with the largest positive contributor, were: consumer price index, money supply, electric energy consumption, tourist arrivals, total merchandise imports, number of new businesses, and wholesale price index. Despite the increase in the number of positive contributors, their contribution remains low at 34.1 percent from 32.0 percent in the third quarter.

The negative contributors, beginning with the largest negative contributor, were: stock price index, terms of trade index, hotel occupancy rate, and foreign exchange rate, and terms of trade index. The negative contributors still outweigh the positive contributors, accounting for 65.9 percent share of total contribution.

The contribution of each of the eleven (11) indicators is measured through the combined effects of 1) the direction (the slope or change) of the cycle component of each indicator; and 2) the correlation of their cycle components with that of the reference series. Table 1 shows the share to total contribution of the positive and negative contributors. 

Table 1. Contributions of the leading economic indicators: Fourth quarter 2009 LEIS

Indicator	Slope (Q4 2009  - Q3 2009)	Correlation coefficient	Contribution 1/	Share to total contribution 3/  ( % )	Rank 5/
					Positive contributors	Negative contributors
Consumer price index *	(0.951)	(0.539)	0.513	21.01	1	na
Money supply	0.410	0.404	0.166	6.79	1	na
Electric energy consumption	0.175	0.330	0.058	2.37	2	na
Tourist arrivals	0.059	0.537	0.032	1.30	3	na
Total merchandise imports	0.055	0.418	0.023	0.94	4	na
Number of new businesses	0.076	0.282	0.021	0.87	5	na
Wholesale price index	0.048	0.418	0.020	0.83	6	na
Stock price index	(1.839)	0.519	(0.954)	39.08	7	na
Terms of trade index*	1.010	(0.347)	(0.350)	14.34	na	1
Hotel occupancy rate	(0.343)	0.791	(0.272)	11.12	na	2
Foreign exchange rate *	0.054	(0.605)	(0.033)	1.34	na	3
					na	4
Total contribution 2/			2.44
Share to total contribution 4/  ( % )				100.0	34.1	65.9

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.

 

Table 2 shows a historical list of the direction of contribution of the 11 indicators from Q1 2008 to Q4 2009 based on updated/revised data as of Q4 2009 LEI estimation. Hence, the contribution direction of the indicators for the past quarters may not necessarily be the same as in previous reports.

 

Table 2.Contribution direction ⁴ of the leading economic indicators: Q1 2008 – Q4 2009

The following plots show data on the levels ⁵ and cycles of the top two positive and top two negative contributors to the composite LEI for the fourth quarter of 2009.

 

Top positive contributor         

1. Consumer price index

The positive contribution of CPI, which leads by ten quarters, was largely due to the lower prices of commodities in the second quarter of 2007 as compared to the previous year of the same period.

 

2. Money Supply

            Money supply, which leads by one quarter, grew by 18.3 percent for the third quarter of 2009 compared to its level from the same period last year, which resulted in the positive contribution to the composite index.

 

Top negative contributors      

1. Stock price index

The plunging stock price index is the top negative contributor for the period. Stock price index, which leads by one quarter, had been contributing negatively in the composite leading indicator since second quarter of 2008.

 

2. Terms of trade index

Terms of trade index, which leads by one quarter, has been contributing negatively to the composite index since Q4 2008.

 

 

Table 3 shows the cycle estimates, slopes, correlation coefficients, contribution values and lead periods of the 11 indicators for the third and fourth quarters of 2009 (concurrently estimated for the fourth quarter 2009 LEIS). 

Table 3.  Cycles, Slopes, Correlation coefficients, and Lead Periods of 
 the 11 Leading Indicators with the Non-Agriculture GVA

Indicator		Direction			Correlation factor 1/	Contribution 2/	Lead Period (in number of quarters)
		Cycle  Q4 2009	Cycle  Q3 2009	Slope  (Q4 2009 - Q3 2009)
1.	Money supply	1.744	1.334	0.410	0.404	0.166	1
2.	Electric energy consumption	0.287	0.112	0.175	0.330	0.058	1
3.	Foreign exchange rate *	1.251	1.197	0.054	(0.605)	(0.033)	1
4.	Stock price index	(4.960)	(3.121)	(1.839)	0.519	(0.954)	1
5.	Terms of trade index *	2.470	1.460	1.010	(0.347)	(0.350)	1
6.	Tourist arrivals	(1.409)	(1.468)	0.059	0.537	0.032	1
7.	Total merchandise imports	(2.999)	(3.054)	0.055	0.418	0.023	1
10.	Wholesale price index	(3.077)	(3.125)	0.048	0.418	0.020	1
8.	Number of new business incorporations	(1.225)	(1.300)	0.076	0.282	0.021	2
9.	Hotel occupancy rate	(1.141)	(0.797)	(0.343)	0.791	(0.272)	4
11.	Consumer price index *	(1.646)	(0.695)	(0.951)	(0.539)	0.513	10

Notes:
1/ Statistically significant at 0.05 percent level and highest correlation coefficient which corresponds to indicated lead period.
2/ Contribution = slope x correlation factor
*   Inverse relationship with GDP.

 

Table 4 below shows the composite LEI estimates and the corresponding slopes for the period first quarter 2001 to fourth quarter 2009. Figure 2 plots the composite LEI against the non-agriculture GVA cycle for the same period.

 

The estimates of the composite LEI are continuously updated when revised or more recent data become available.  Below are the updated estimates of the composite LEI for the years 2007, 2008 and first three quarters of 2009.

Table 5.  Composite LEI estimate updates

Quarter	As first released	Updated as of  Q4 2009 LEI report	Difference
Q1 2007	0.170	0.135	(0.035)
Q2 2007	0.294	0.181	(0.113)
Q3 2007	0.407	0.281	(0.126)
Q4 2007	0.286	0.454	0.168
Q1 2008	0.456	0.591	0.135
Q2 2008	0.566	0.611	0.045
Q3 2008	0.451	0.482	0.031
Q4 2008	0.102	0.256	0.154
Q1 2009	(0.075)	(0.036)	0.039
Q2 2009	(0.195)	(0.359)	(0.164)
Q3 2009	(0.425)	(0.570)	(0.145)

 

The composite LEI for Q3 2009 was revised downwards by 0.145. The composite LEI for all quarters of 2008 and first three quarter of 2009 were released as follows:

Q1 2008 – 11 February 2008
Q2 2008 – 30 May 2008
Q3 2008 – 11 August 2008
Q4 2008 – 03 November 2008
Q1 2009 – 26 January 2009
Q2 2009 – 28 May 2009
Q3 2009 – 02 October 2009

_____________

¹ See Table 4 for composite LEI estimates for Q1 2001 to Q4 2009 concurrently estimated for the Q4 2009 LEIS.

² See Highlights of the Q3 2009 LEI report accessible at http://www.nscb.gov.ph/lei/2009/3Qlei/3rdQ09_LEI_highlights.asp; See Table 5 for the revised/ updated LEI for Q1 2007 to Q3 2009

³ The number of positive contributors in the previous quarters as presented in past reports may be revised every quarter when the LEI is estimated.

⁴ 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 the third quarter 2009 estimation of the LEI, the indicators that changed contribution direction from third quarter 2009 LEIS to fourth quarter 2009 are as follows:

From negative to positive contribution:

1. Total merchandise imports
2. Number of new businesses
3. Wholesale price index

⁵ Truncated based on the indicators’ lead periods. See Table 3 for the list of indicator leads; and Section C, Table 6 of the Technical Notes for the schedule of data used/required in the seasonal adjustment of the 11 leading indicators and the computation of the composite LEI.

 

 

 

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