Highlights of the Third Quarter 2012 LEIS
Leading Economic Indicator (LEI) slides in third quarter 2012
(Posted 23 August 2012)
After four quarters in a row of upward direction that started in third quarter 2011, the composite leading economic indicator (LEI) slid slightly in third quarter 2012, posting 0.1461 from a revised 0.2062 in the second quarter of the same year. This indicates a possible slowdown of economic activity in the country for the quarter.
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 1988 to Q3 2012
Table 1 below shows the composite LEI estimates and the corresponding slopes for the period first quarter 2001 to third quarter 2012. Figure 2 plots the composite LEI against the non-agriculture GVA cycle for the same period.
Table 1. Composite Leading Economic Indicator (LEI) Q1 2001 to Q3 2012
Of the 11 indicators that make up the composite LEI, only four indicators contributed positively. The positive contributors include, starting with the largest positive contributor: (1) terms of trade index, (2) electric energy consumption, (3) stock price index, and (4) foreign exchange rate. The combined share of positive contributors for this quarter largely decreased to 27.8 percent from 78.9 percent in Q2 2012.
On the other hand, the negative contributors, beginning with the largest negative contributor, were: (1) money supply, (2) total merchandise imports, (3) wholesale price index, (4) visitor arrivals3, (5) hotel occupancy rate, (6) number of new businesses, and (7) consumer price index. The negative contributors accounted for 72.2 percent of the total contribution.
The contribution of each of the 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 2 shows the share to total contribution of the positive and negative contributors.
Table 2. Contributions of the leading economic indicators: Third quarter 2012 LEIS
* Inverse relationship with GDP.
a/ Contribution = slope x correlation coefficient
b/ Total contribution = summation of the absolute values of contribution.
c/ Share to total contribution = percentage share of the contribution of each indicator to total contribution.
d/ Share to total contribution = percentage share of contributors by type of contribution.
e/ Rank = rank of the indicators in contribution, 1 being the highest.
Table 3 shows a list of the direction of contribution of the 11 indicators from Q1 2009 to Q3 2012 as first released.
For the Q3 2012 LEI, seven indicators shifted direction in contribution from the second quarter of 2012, namely: electric energy consumption and foreign exchange rate, from negative to positive, and hotel occupancy rate, money supply, number of new businesses, visitor arrivals, and total merchandise imports, from positive to negative.
Table 3. Contribution direction 4 of the leading economic indicators:
Q1 2008 to Q3 2012
The top two positive and top two negative contributors to the composite LEI for the third quarter of 2012 are: terms of trade index and electric energy consumption; and money supply and total merchandise imports, respectively. In the Q2 2012 LEI estimation, the top two positive contributors were visitor arrivals and number of new businesses, while the top two negative contributors were consumer price index and foreign exchange rate.
The following plots show the levels5 and cycles of the positive contributors followed by the negative contributors:
Terms of trade index registered six consecutive quarters of increases from Q4 2008 to Q1 2010 after a series of declines since Q2 2005, making it as the top positive contributor of the composite LEI. With an inverse relationship to GDP and leading by ten quarters, terms of trade index has been a positive contributor for two consecutive quarters.
Terms of trade index for merchandise goods is the ratio of export price index to the import price index. It measures the changes in the prices received for exports relative to the prices for imports.
2. Electric Energy Consumption
Electric energy consumption, which leads by one quarter, shifted direction to being a positive contributor in Q3 2012 from being a negative contributor in the previous quarter. The past several quarters manifested positive growth rates for electric energy consumption, except in Q2 2011 which registered negative growth.
3. Stock Price Index
Stock price index has been contributing positively to the composite LEI for ten consecutive quarters starting Q2 2010. Leading by one quarter, stock price index went up by 20.9 percent in Q2 2012.
4. Foreign Exchange Rate
With an inverse relationship to GDP and leading by one quarter, foreign exchange rate contributedpositively to the LEI after being a negative contributor two quarters in a row. Foreign exchange rate declined by 1.1 percent in Q2 2012 at PhP 42.78 per US dollar from PhP 43.25 in Q2 2011.
1. Money Supply
After having contributed negatively for six straight quarters starting Q4 2010 and then interruptedly being a positive contributor for a quarter, money supply became the top negative contributor to the composite LEI. With one quarter lead, money supply slightly grew by 5.2 percent in second quarter 2012, maintaining its one-digit growth since Q3 2010.
2. Total Merchandise Imports
Total merchandise imports continued to be a negative contributor since the previous quarter. Leading by one quarter, total merchandise imports declined by 2.2 percent in Q2 2012 from its level in Q2 2011.
3. Wholesale Price Index
Wholesale price index became a negative contributor to the LEI after contributing positively for two straight quarters. Leading by one quarter, wholesale price index went up very slightly by 0.4 percent over the same period last year.
4. Visitor Arrivals
For the past three quarters, visitor arrivals has been the top positive contributor to the composite LEI. However, visitor arrivals shifted direction and became a negative contributor in Q3 2012. Visitor arrivals grew only by 7.0 percent in second quarter 2012 or an estimated 995,000 visitors.
5. Hotel Occupancy Rate
Leading by two quarters, hotel occupancy rate increased by 2.1 percent in Q1 2012 and declined by 3.3 percent in Q2 2012. Hotel occupancy rate became a negative contributor after four straight quarters of having contributed positively to the LEI.
6. Number of New Businesses
After having been a positive contributor for three straight quarters, number of new businesses shifted direction to become a negative contributor. With one quarter lead, number of new businesses went up by 18.6 percent in Q2 2012.
7. Consumer Price Index
With inverse relationship to GDP and leading by 10 quarters, consumer price index (CPI) has been a negative contributor since the previous quarter. CPI went up by 4.3 percent in Q1 2010.
Table 4 shows the cycle estimates, slopes, correlation coefficients, contribution values and lead periods of the 11 indicators for the second and third quarters of 2012 (concurrently estimated for third quarter 2012 LEIS).
Table 4. Cycles, Slopes, Correlation coefficients, and Lead Periods of
the 11 Leading Indicators with the Non-Agriculture GVA
* Inverse relationship with GDP.
1/ Statistically significant at 0.05 percent level and highest correlation coefficient which corresponds to indicated lead period.
2/ Contribution = slope x correlation factor
The estimates of the composite LEI are continuously updated when revised or more recent data become available. Table 5 shows the comparison between the previously released and the updated estimates of the composite LEI from Q1 2007 to Q2 2012.
Table 5. Composite LEI estimate updates
The composite LEI for Q2 2012 was revised upwards by 0.081, from 0.125 to 0.206.
From Q1 2007 to Q1 2012, the revisions were generally downward, except for the following quarters: Q4 2007, Q1 2008, Q4 2008, Q4 2009 to Q3 2010, and Q1 2011 which had upward revisions. With the revisions, the direction of the LEI as first released versus the updated was maintained, except for Q1 2011 to Q3 2011.
The composite LEI for the four quarters of 2011 and first two quarters of 2012 were released as follows:
Q1 2011 – 10 February 2011
Q2 2011 – 31 March 2011
Q3 2011 – 14 September 2011
Q4 2011 – 8 November 2011
Q1 2012 – 18 January 2012
Q2 2012 - 21 June 2012
1 See Table 1 for composite LEI estimates for Q1 2001 to Q3 2012 concurrently estimated for the Q3 2012 LEIS.
2 See Table 5 for the revised/updated LEI for Q1 2007 to Q2 2012. The estimates are continuously updated when revised or more recent data become available.
3 Per UNWTO International Recommendations on Tourism Statistics (IRTS) 2008 recommendations, tourist arrivals are now called visitor arrivals.
4 The contribution direction (i.e., positive or negative contribution) of each of the eleven indicators may change each quarter the LEI is estimated. For third quarter 2012 estimation of the LEI, the indicators that changed contribution direction from second quarter 2012 to third quarter 2012 LEIS are as follows:
From negative to positive: Hotel occupancy rate
Number of new businesses
Total merchandise imports
From positive to negative: Electric energy consumption
Foreign exchange rate
Also, in the LEI Reports from Q3 2009 to Q3 2011, the contributions of each of the 11 indicators for the entire series were based on the updated correlation coefficients as of the latest LEI.
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 Notesfor theschedule of data used/required in the seasonal adjustment of the 11 leading indicators and the computation of the composite LEI.