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Highlights of the Second Quarter 2010 LEIS
Leading Economic Indicator (LEI) sustains upward streak
in the second quarter 
(Posted 03 June 2010)
The composite leading economic indicator (LEI) posted a second consecutive increase for the quarter, improving to negative 0.3481 in the second quarter from a revised negative 0.5332 in the first quarter of 2010. This marks the second steepest ascent of the composite LEI series since Q3 1986, with the first one occurring in Q1 2008 (Figure 1).
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 Q2 2010
The number of positive 3 contributors as concurrently estimated in this period went down to eight, compared to nine in Q1 2010. While the number of positive contributors for this quarter is one less than the previous, the combined share increased impressively to 98.9 percent from only 51.0 percent in the previous quarter, as the slopes of the positive contributors steepened significantly during the quarter.
The positive contributors, starting with the largest positive contributor, were: total merchandise imports, consumer price index, wholesale price index, tourist arrivals, stock price index, electric energy consumption, hotel occupancy rate, and money supply. The negative contributors, beginning with the largest negative contributor, were: number of new businesses, terms of trade index, and foreign exchange rate. The negative contributors accounted for only 1.1 percent 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: Second quarter 2010 LEIS
Indicator |
Slope |
Correlation coefficient |
Contribution a/ |
Share to total contribution c/ ( % ) |
Rank e/ |
|
positive contributors |
negative contributors |
|||||
Total merchandise imports |
1.417 |
0.447 |
0.634 |
30.56 |
1 |
na |
Consumer price index * |
(1.238) |
(0.453) |
0.560 |
27.02 |
2 |
na |
Wholesale price index |
0.802 |
0.466 |
0.374 |
18.02 |
3 |
na |
Tourist arrivals |
0.411 |
0.546 |
0.224 |
10.82 |
4 |
na |
Stock price index |
0.196 |
0.540 |
0.106 |
5.12 |
5 |
na |
Electric energy consumption |
0.190 |
0.345 |
0.065 |
3.15 |
6 |
na |
Hotel occupancy rate |
0.065 |
0.795 |
0.052 |
2.51 |
7 |
na |
Money supply |
0.122 |
0.296 |
0.036 |
1.73 |
8 |
na |
Number of new businesses |
(0.028) |
0.331 |
(0.009) |
0.44 |
na |
1 |
Terms of trade index* |
0.020 |
(0.353) |
(0.007) |
0.35 |
na |
2 |
Foreign exchange rate * |
0.010 |
(0.560) |
(0.006) |
0.27 |
na |
3 |
|
|
|
|
|
|
|
Total contribution b/ |
|
|
2.07 |
|
|
|
Share to Total contribution d/ ( % ) |
|
|
100.0 |
98.9 |
1.1 |
|
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 Q2 2010 based on updated/revised data as of Q2 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 second quarter of 2010, namely, total merchandise imports and consumer price index, and number of new businesses and terms of trade index, respectively. In Q1 2010, the same indicators were the top two positive contributors while the top two negative contributors were stock price index and tourist arrivals.
Top positive contributor
1. Total Merchandise Imports
The FOB value of total merchandise imports, which has a lead period of one quarter, rose by 29.4 percent in the first two months of 2010 6, estimated at US$ 8.19 billion from US$ 6.33 billion in the same period of 2009. The country’s imports continued to improve after its consecutive slump that ended only in November 2009.
2. 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 fourth quarter of 2007 as compared to the same period of the previous year.
Top negative contributors
1. Number of new businesses
The number of new business is the top negative contributor for the period. Leading by two quarters, the number of new business was estimated at around 3,240 in Q4 2009, up by just 1.4 percent from the same period in 2008. Except in Q4 2002 and Q1 2003 which recorded growth of 8.9 percent and 10.4 percent, respectively, new businesses hardly grew in 32 quarters starting 2001. The next highest growths recorded were on the second and third quarters of 2003 which grew at a rate of 3.1 percent and 3.0 percent, respectively. It grew again in Q4 2007 and Q2 2008 but in a minimal rate of 1.7 percent and 1.5 percent only 7.
2. Terms of trade index
Terms of trade index, a consistent negative contributor since Q4 2008 continued to pull down the second quarter 2010 LEI. Leading by one quarter, terms of trade with its negative correlation coefficient, slowed down in Q1 2010, with a growth of 18.1 percent, slightly lower than the average growth of 22.3 percent for the past three quarters, pointing to the possibility of a shift in its contribution in the future quarters from negative to positive.
Table 3 shows the cycle estimates, slopes, correlation coefficients, contribution values and lead periods of the 11 indicators for the first quarter and second quarter 2010 (concurrently estimated for second 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 * |
0.852 |
2.089 |
(1.238) |
(0.453) |
0.560 |
10 |
2 |
Electric energy consumption |
0.252 |
0.063 |
0.190 |
0.345 |
0.065 |
3 |
3 |
Foreign exchange rate * |
0.681 |
0.671 |
0.010 |
(0.560) |
(0.006) |
1 |
4 |
Hotel occupancy rate |
(0.409) |
(0.474) |
0.065 |
0.795 |
0.052 |
4 |
5 |
Total merchandise imports |
(0.994) |
(2.411) |
1.417 |
0.447 |
0.634 |
1 |
6 |
Money supply |
1.482 |
1.360 |
0.122 |
0.296 |
0.036 |
1 |
7 |
Number of new business incorporations |
0.036 |
0.064 |
(0.028) |
0.331 |
(0.009) |
2 |
8 |
Stock price index |
(3.014) |
(3.210) |
0.196 |
0.540 |
0.106 |
1 |
9 |
Tourist arrivals |
(0.660) |
(1.071) |
0.411 |
0.546 |
0.224 |
1 |
10 |
Terms of trade index * |
2.117 |
2.097 |
0.020 |
(0.353) |
(0.007) |
1 |
11 |
Wholesale price index |
(0.210) |
(1.012) |
0.802 |
0.466 |
0.374 |
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 |
(0.107) |
(0.024) |
Q2 |
(0.084) |
0.023 |
Q3 |
(0.094) |
(0.010) |
Q4 |
(0.208) |
(0.114) |
2002 Q1 |
(0.341) |
(0.132) |
Q2 |
(0.349) |
(0.008) |
Q3 |
(0.240) |
0.109 |
Q4 |
(0.166) |
0.074 |
2003 Q1 |
(0.164) |
0.002 |
Q2 |
(0.175) |
(0.012) |
Q3 |
(0.193) |
(0.018) |
Q4 |
(0.175) |
0.019 |
2004 Q1 |
(0.133) |
0.042 |
Q2 |
(0.092) |
0.041 |
Q3 |
(0.041) |
0.051 |
Q4 |
0.000 |
0.042 |
2005 Q1 |
(0.012) |
(0.012) |
Q2 |
(0.022) |
(0.011) |
Q3 |
(0.013) |
0.010 |
Q4 |
(0.013) |
(0.000) |
2006 Q1 |
0.008 |
0.021 |
Q2 |
0.020 |
0.012 |
Q3 |
0.018 |
(0.002) |
Q4 |
0.037 |
0.019 |
2007 Q1 |
0.076 |
0.039 |
Q2 |
0.104 |
0.029 |
Q3 |
0.181 |
0.077 |
Q4 |
0.363 |
0.181 |
2008 Q1 |
0.559 |
0.196 |
Q2 |
0.695 |
0.136 |
Q3 |
0.712 |
0.017 |
Q4 |
0.583 |
(0.129) |
2009 Q1 |
0.257 |
(0.326) |
Q2 |
(0.177) |
(0.434) |
Q3 |
(0.529) |
(0.352) |
Q4 |
(0.645) |
(0.116) |
| 2010 Q1 | (0.533) |
0.112 |
|
(0.348) |
0.184 |
Table 4: Composite Leading Indicator (LEI):
Q1 2001 to Q2 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 and Q1 2010
Table 5. Composite LEI estimate updates
Quarter |
As first released |
Updated as of Q2 2010 LEI report |
Difference |
Q1 2007 |
0.170 |
0.076 |
(0.094) |
Q2 2007 |
0.294 |
0.104 |
(0.190) |
Q3 2007 |
0.407 |
0.181 |
(0.226) |
Q4 2007 |
0.286 |
0.363 |
0.077 |
Q1 2008 |
0.456 |
0.559 |
0.103 |
Q2 2008 |
0.566 |
0.695 |
0.129 |
Q3 2008 |
0.451 |
0.712 |
0.261 |
Q4 2008 |
0.102 |
0.583 |
0.481 |
Q1 2009 |
(0.075) |
0.257 |
0.332 |
Q2 2009 |
(0.195) |
(0.177) |
0.018 |
Q3 2009 |
(0.425) |
(0.529) |
(0.104) |
Q4 2009 |
(0.640) |
(0.645) |
(0.005) |
Q1 2010 |
(0.470) |
(0.533) |
(0.063) |
The composite LEI for Q1 2010 was revised downwards by 0.063. The composite LEI for all quarters of 2008 and 2009 and first quarter of 2010 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 2010
Q1 2010 - 08 March 2010
_____________
1 See Table 4 for composite LEI estimates for Q1 2001 to Q2 2010 concurrently estimated for the Q2 2010 LEIS.
2 See Highlights of the Q1 2010 LEI report accessible at http://www.nscb.gov.ph/lei/2010/1Qlei_10/1stQ10_LEI_highlights.asp See Table 5 for the revised/ updated LEI for Q1 2007 to Q1 2010. 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 second quarter 2010 estimation of the LEI, the indicators that changed contribution direction from first quarter second quarter 2010 LEIS are as follows:
From negative to positive contribution:
|
From positive to negative contribution:
|
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.
6 Due to unavailability of the March 2010 data, Q1 2010 figure was imputed using the growth rate of the first two months as indicator. Q1 2010 merchandise imports is estimated at 12.42 billion USD, 29.4 percent higher than Q1 2009 figure recorded at 9.60 billion USD.
7 The main limitation of number of new business is the use of forecast data for all quarters of 2009 as the data are not yet available at the time of the LEI computation. Forecasting of these unavailable data is done to accommodate the timely release of the composite indicator.
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