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Highlights of the First Quarter 2010 LEIS
Leading Economic Indicator (LEI) halts descent
in the first quarter 
(Posted 08 March 2010)
After a six-quarter downward streak, which started with the global financial crisis in the third quarter of 2008, the composite leading economic indicator (LEI) shifted direction in the first quarter of 2010, slightly improving to negative 0.470 1 from a revised negative 0.473 2 in the fourth quarter of 2009 (Table 4). While the descent of the index began to slow down as early as Q3 2009, its directional shift in Q1 2010 confirms the definitive recovery of the Philippine economy from the global crisis.
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 Q1 2010
The number of positive 3 contributors as concurrently estimated in this period remained at seven, similar to Q4 2009 from only four in Q3 2009. The positive contributors, starting with the largest positive contributor, were: consumer price index, total merchandise imports, wholesale price index, foreign exchange rate, hotel occupancy rate, number of new businesses, and electric energy consumption. Although the number of positive contributors remained the same, their combined share increased to 51.0 percent from only 34.1 percent in Q4 2009. The last time positive contributors outweighed their negative counterparts was in Q2 2008 with a 76.9 percent share.
The negative contributors, beginning with the largest negative contributor, were: stock price index, tourist arrivals, terms of trade index, and money supply. The negative contributors accounted for 49.0 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: First quarter 2010 LEIS
Indicator |
Slope |
Correlation coefficient |
Contribution 1/ |
Share to total contribution 3/ ( % ) |
Rank 5/ | |
| Positive contributors | Negative contributors | |||||
Consumer price index * |
(0.476) |
(0.528) |
0.251 |
15.51 |
1 |
na |
Total merchandise imports |
0.425 |
0.416 |
0.177 |
10.91 |
2 |
na |
Wholesale price index |
0.382 |
0.416 |
0.159 |
9.81 |
3 |
na |
Foreign exchange rate * |
(0.145) |
(0.586) |
0.085 |
5.23 |
4 |
na |
Hotel occupancy rate |
0.090 |
0.807 |
0.073 |
4.49 |
5 |
na |
Number of new businesses |
0.205 |
0.261 |
0.053 |
3.30 |
6 |
na |
Electric energy consumption |
0.093 |
0.300 |
0.028 |
1.72 |
7 |
na |
Stock price index |
(0.603) |
0.502 |
(0.303) |
18.68 |
na |
na |
Tourist arrivals |
(0.412) |
0.538 |
(0.221) |
13.67 |
na |
1 |
Terms of trade index* |
0.466 |
(0.349) |
(0.163) |
10.03 |
na |
2 |
Money supply |
(0.294) |
0.367 |
(0.108) |
6.65 |
na |
3 |
|
|
|
|
|
|
4 |
Total contribution 2/ |
|
|
1.62 |
|
|
|
Share to Total contribution 4/ ( % ) |
|
|
100.0 |
51.0 |
49.0 |
|
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.
Table 2 shows a historical list of the direction of contribution of the 11 indicators from Q1 2008 to Q1 2010 based on updated/revised data as of Q1 2010 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 – Q1 2010
The following plots show data on the levels 5and cycles of the top two positive and top two negative contributors to the composite LEI for the first quarter of 2010, namely, composite price index and total merchandise imports, and stock price index and tourist arrivals, respectively. In Q4 2009, the top two positive contributors were consumer price index and money supply while the top two negative contributors were stock price index and terms of trade index.
Top positive contributor
1. Consumer price index
The positive contribution of CPI, which leads by ten quarters, was largely due to the slower movement of prices of commodities in the third quarter of 2007 as compared to the same period of the previous year.
2. Total Merchandise Imports
The FOB value of total merchandise imports, which has a lead period of one quarter, declined by only 0.3 percent in the fourth quarter of 2009, estimated at 11.33 billion USD from 11.36 billion USD in the same quarter of 2008. Although still at a declining rate, its performance was a significant improvement from the previous four quarters which declined by an average of 28.9 percent.
Top negative contributors
1. Stock price index
The plunging stock price index is still the top negative contributor for the period. Stock price index, which leads by one quarter, dropped by 80.2 percent in the fourth quarter of 2009 over the same period in 2008. It had been contributing negatively in the composite leading indicator since the second quarter of 2008.
2. Tourist Arrivals
Tourist Arrivals, which leads by one quarter, has been contributing negatively to the composite index since Q1 2008. The growth of tourist arrivals from abroad has been declining since Q3 2008.
Table 3 shows the cycle estimates, slopes, correlation coefficients, contribution values and lead periods of the 11 indicators for the fourth quarter 2009 and first quarter 2010 (concurrently estimated for first quarter 2010 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 |
|||
Cycle |
Cycle |
Slope |
|||||
1 |
Consumer price index * |
(2.078) |
(1.602) |
(0.476) |
(0.528) |
0.251 |
10 |
2 |
Electric energy consumption |
0.365 |
0.272 |
0.093 |
0.300 |
0.028 |
1 |
3 |
Foreign exchange rate * |
0.780 |
0.925 |
(0.145) |
(0.586) |
0.085 |
1 |
4 |
Hotel occupancy rate |
(0.855) |
(0.945) |
0.090 |
0.807 |
0.073 |
4 |
5 |
Total merchandise imports |
(1.932) |
(2.357) |
0.425 |
0.416 |
0.177 |
1 |
6 |
Money supply |
1.211 |
1.505 |
(0.294) |
0.367 |
(0.108) |
1 |
7 |
Number of new business incorporations |
0.150 |
(0.055) |
0.205 |
0.261 |
0.053 |
2 |
8 |
Stock price index |
(4.353) |
(3.749) |
(0.603) |
0.502 |
(0.303) |
1 |
9 |
Tourist arrivals |
(1.797) |
(1.385) |
(0.412) |
0.538 |
(0.221) |
1 |
10 |
Terms of trade index * |
2.493 |
2.026 |
0.466 |
(0.349) |
(0.163) |
1 |
11 |
Wholesale price index |
(2.151) |
(2.533) |
0.382 |
0.416 |
0.159 |
1 |
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 first quarter 2010. Figure 2 plots the composite LEI against the non-agriculture GVA cycle for the same period.
| Period | Composite LEI |
Slope |
2001 Q1 |
(0.148) |
(0.097) |
Q2 |
(0.177) |
(0.029) |
Q3 |
(0.193) |
(0.016) |
Q4 |
(0.282) |
(0.089) |
2002 Q1 |
(0.356) |
(0.075) |
Q2 |
(0.272) |
0.085 |
Q3 |
(0.126) |
0.146 |
Q4 |
(0.088) |
0.037 |
2003 Q1 |
(0.111) |
(0.023) |
Q2 |
(0.157) |
(0.045) |
Q3 |
(0.232) |
(0.075) |
Q4 |
(0.232) |
(0.001) |
2004 Q1 |
(0.169) |
0.064 |
Q2 |
(0.146) |
0.023 |
Q3 |
(0.118) |
0.028 |
Q4 |
(0.086) |
0.032 |
2005 Q1 |
(0.100) |
(0.014) |
Q2 |
(0.092) |
0.008 |
Q3 |
(0.041) |
0.051 |
Q4 |
0.003 |
0.044 |
2006 Q1 |
0.045 |
0.042 |
Q2 |
0.080 |
0.034 |
Q3 |
0.090 |
0.010 |
Q4 |
0.112 |
0.022 |
2007 Q1 |
0.149 |
0.037 |
Q2 |
0.174 |
0.025 |
Q3 |
0.268 |
0.094 |
Q4 |
0.441 |
0.173 |
2008 Q1 |
0.574 |
0.133 |
Q2 |
0.602 |
0.028 |
Q3 |
0.512 |
(0.090) |
Q4 |
0.310 |
(0.202) |
2009 Q1 |
0.042 |
(0.268) |
Q2 |
(0.221) |
(0.263) |
Q3 |
(0.395) |
(0.174) |
Q4 |
(0.473) |
(0.078) |
2010 Q1 |
(0.470) |
0.003 |
Table 4: Composite Leading Indicator (LEI):
Q1 2001 TO q1 2010
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 2009.
Table 5. Composite LEI estimate updates
Quarter |
As first released |
Updated as of Q1 2010 LEI report |
Difference |
Q1 2007 |
0.170 |
0.149 |
(0.021) |
Q2 2007 |
0.294 |
0.174 |
(0.120) |
Q3 2007 |
0.407 |
0.268 |
(0.139) |
Q4 2007 |
0.286 |
0.441 |
0.155 |
Q1 2008 |
0.456 |
0.574 |
0.118 |
Q2 2008 |
0.566 |
0.602 |
0.036 |
Q3 2008 |
0.451 |
0.512 |
0.061 |
Q4 2008 |
0.102 |
0.310 |
0.208 |
Q1 2009 |
(0.075) |
0.042 |
0.117 |
Q2 2009 |
(0.195) |
(0.221) |
(0.026) |
Q3 2009 |
(0.425) |
(0.395) |
0.031 |
Q4 2009 |
(0.640) |
(0.473) |
0.167 |
The composite LEI for Q4 2009 was revised upwards by 0.167. The composite LEI for all quarters of 2008 and 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
Q4 2009 – 08 January 2009
_____________
1See Table 4 for composite LEI estimates for Q1 2001 to Q1 2010 concurrently estimated for the Q1 2010 LEIS..
2 See Highlights of the Q4 2009 LEI report accessible at http://www.nscb.gov.ph/lei/2009/4Qlei/4thQ09_LEI_highlights.asp See Table 5 for the revised/ updated LEI for Q1 2007 to Q4 2009. The estimates of the composite LEI are revised and the direction may change due to revised or availability of recent indicators that make up the composite LEI.
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 first quarter 2010 estimation of the LEI, the indicators that changed contribution direction from fourth quarter 2009 to first quarter 2010 LEIS are as follows:
From negative to positive contribution: 1. Hotel occupancy rate
From positive to negative contribution: 1. Money supply
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.
Leading Economic Indicators |
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