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Highlights of the Fourth Quarter 2010 LEIS
Leading Economic Indicator (LEI)
rises for 5th consecutive quarter 
(Posted 20 December 2010)
The composite leading economic indicator (LEI) rose for the fifth consecutive quarter but the upswing in the fourth quarter of 2010 continued the slowdown that started in the third quarter. The fourth quarter 2010 LEI increased to 0.026 1 from a revised 0.022 2 in the third quarter of 2010, the slimmest rise in the composite LEI since the fourth quarter of 2009 when the index started to shift direction after five quarters of a downward streak (Figure 1 below and Table 4).
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 2010
The number of positive 3 contributors as concurrently estimated totaled only to six, compared to ten in Q3 2010, eleven in Q2 2010, and nine in Q1 2010. The combined share of positive contributors for this quarter consequently dropped to only 51.5 percent from the 79.04 percent and 100 percent in the third and second quarters, respectively.
The positive contributors, starting with the largest positive contributor, were: tourist arrivals, number of new businesses, foreign exchange rate, stock price index, hotel occupancy rate, and electric energy consumption. On the other hand, the negative contributors, beginning with the largest negative contributor, were: wholesale price index, terms of trade index, consumer price index, money supply, and total merchandise imports. The negative contributors accounted for 48.5 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: Fourth quarter 2010 LEIS
Indicator |
Slope |
Correlation coefficient |
Contribution a/ |
Share to total contribution c/ ( % ) |
Rank e/ |
|
positive contributors |
negative contributors |
|||||
Tourist arrivals |
0.850 |
0.545 |
0.463 |
26.52 |
1 |
na |
Number of new businesses |
0.422 |
0.448 |
0.189 |
10.82 |
2 |
na |
Foreign exchange rate * |
(0.149) |
(0.627) |
0.094 |
5.35 |
3 |
na |
Stock price index |
0.215 |
0.341 |
0.073 |
4.20 |
4 |
na |
Hotel occupancy rate |
0.074 |
0.745 |
0.055 |
3.15 |
5 |
na |
Electric energy consumption |
0.116 |
0.221 |
0.026 |
1.47 |
6 |
na |
Wholesale price index |
(1.138) |
0.402 |
(0.457) |
26.17 |
na |
1 |
Terms of trade index* |
0.716 |
(0.270) |
(0.193) |
11.05 |
na |
2 |
Consumer price index * |
0.379 |
(0.381) |
(0.144) |
8.27 |
na |
3 |
Money supply |
(0.098) |
0.450 |
(0.044) |
2.53 |
na |
4 |
Total merchandise imports |
(0.026) |
0.319 |
(0.008) |
0.47 |
na |
5 |
|
|
|
|
|
|
|
Total contribution b/ |
|
|
1.748 |
|
|
|
Share to Total contribution d/ ( % ) |
|
|
100.0 |
51.5 |
48.5 |
|
Notes
* 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 2 shows a historical list of the direction of contribution of the 11 indicators from Q1 2008 to Q4 2010 based on updated/revised data as of Q4 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 direction5 of the leading economic indicators: Q1 2008 – Q4 2010
| Indicator | Q1 2008 | Q2 2008 | Q3 2008 | Q4 2008 | Q1 2009 | Q2 2009 | Q3 2009 | Q4 2009 | Q1 2010 | Q2 2010 | Q3 2010 | Q4 2010 |
| Consumer Price Index | + | + | + | + | - | - | - | - | + | + | + | - |
| Electric energy consumption | - | - | - | - | + | - | - | + | + | + | + | + |
| Foreign exchange rate | + | + | - | - | - | - | - | + | + | + | + | + |
| Hotel occupancy rate | - | - | + | - | - | - | - | + | + | + | + | + |
| Total merchandise imports | + | + | - | - | - | - | - | + | + | + | + | - |
| Money supply | - | - | - | + | + | + | + | + | + | + | + | - |
| Number of new businesses | + | + | + | - | - | - | + | + | + | + | - | + |
| Stock Price Index | + | - | - | - | - | - | - | - | - | + | + | + |
| Tourist arrivals | + | - | - | - | - | - | - | + | + | + | + | + |
| Terms of trade index | + | + | - | - | - | - | - | - | + | + | + | - |
| Wholesale Price Index | + | + | + | - | - | - | - | + | + | + | - | - |
For the fourth quarter of 2010, four of the eleven indicators changed direction from the third quarter, namely: consumer price index, total merchandise imports, money supply, and terms of trade index.
The following plots show the levels6 and cycles of the top two positive and top two negative contributors to the composite LEI for the fourth quarter of 2010, namely, tourist arrivals and number of new businesses; and wholesale price index and terms of trade index, respectively. In Q3 2010, the top two positive contributors were consumer price index and money supply while the only negative contributor was wholesale price index.
Top positive contributors
Tourist arrivals which leads by one quarter, increased in Q3 2010 by 23.0 percent, from 703,035 in Q3 2009 to 864,489 in Q3 2010. This marks the fourth consecutive quarters of growth and the highest growth since the second quarter of 2004 with 53.2 percent.
2. Number of new businesses
The positive contribution of number of new business, which leads by one quarter, was due to the increase in the number of new businesses registered in Q3 2010 by 59.6 percent, from 2,390 in Q3 2009 to 3,814 in Q3 2010. The number of new businesses has been contributing positively to the index since the third quarter of 2009.
Top negative contributors
1. Wholesale price index
Wholesale price index (WPI) has been pulling the composite index down for two consecutive quarters as it decelerated further in the third quarter 2010 by 3.8 percent. The deceleration resulted to the downward movement of the WPI cycle.
2. Terms of Trade Index
Terms of trade index with its negative correlation coefficient (which denotes inverse relationship with GDP) increased by 3.4 percent in third quarter 2010. Leading by one quarter, terms of trade index pulled the fourth quarter 2010 LEI after contributing positively to the index in the past three quarters.
Table 3 shows the cycle estimates, slopes, correlation coefficients, contribution values and lead periods of the 11 indicators for the third quarter and fourth quarter 2010 (concurrently estimated for fourth quarter 2010 LEIS).
Table 3. Cycles, Slopes, Correlation coefficients, and Lead Periods of the 11 Leading Indicators with the Non-Agriculture GVA
| Indicators | Direction | Correlation factor 1/ | Contribution2/ | Lead Period (in number of quarters) | |||
Cycle |
Cycle |
Slope |
|||||
| 1 | Consumer price index * |
0.136 |
(0.244) |
0.379 |
(0.381) |
(0.144) |
4 |
| 2 | Electric energy consumption |
0.167 |
0.051 |
0.116 |
0.221 |
0.026 |
1 |
| 3 | Foreign exchange rate * |
0.209 |
0.359 |
(0.149) |
(0.627) |
0.094 |
1 |
| 4 | Hotel occupancy rate |
(0.007) |
(0.081) |
0.074 |
0.745 |
0.055 |
2 |
| 5 | Total merchandise imports |
0.654 |
0.680 |
(0.026) |
0.319 |
(0.008) |
1 |
| 6 | Money supply |
1.212 |
1.310 |
(0.098) |
0.450 |
(0.044) |
1 |
| 7 | Number of new business incorporations |
0.952 |
0.529 |
0.422 |
0.448 |
0.189 |
1 |
| 8 | Stock price index |
(1.580) |
(1.796) |
0.215 |
0.341 |
0.073 |
1 |
| 9 | Tourist arrivals |
1.641 |
0.791 |
0.850 |
0.545 |
0.463 |
1 |
| 10 | Terms of trade index * |
1.320 |
0.604 |
0.716 |
(0.270) |
(0.193) |
1 |
| 11 | Wholesale price index |
(1.834) |
(0.696) |
(1.138) |
0.402 |
(0.457) |
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 second quarter 2001 to fourth quarter 2010. Figure 2 plots the composite LEI against the non-agriculture GVA cycle for the same period.
Table 4. Composite Leading Economic Indicator (LEI): Q1 2001 to Q4 2010
| Period | Composite LEI | Slope |
| 2001 Q1 | (0.114) |
(0.047) |
| Q2 | (0.114) |
0.000 |
| Q3 | (0.143) |
(0.029) |
| Q4 | (0.283) |
(0.140) |
| 2002 Q1 | (0.407) |
(0.124) |
| Q2 | (0.344) |
0.063 |
| Q3 | (0.137) |
0.206 |
| Q4 | (0.020) |
0.117 |
| 2003 Q1 | (0.066) |
(0.046) |
| Q2 | (0.182) |
(0.115) |
| Q3 | (0.255) |
(0.074) |
| Q4 | (0.170) |
0.085 |
| 2004 Q1 | (0.004) |
0.166 |
| Q2 | 0.065 |
0.069 |
| Q3 | 0.021 |
(0.044) |
| Q4 | (0.037) |
(0.058) |
| 2005 Q1 | (0.085) |
(0.048) |
| Q2 | (0.086) |
(0.000) |
| Q3 | (0.030) |
0.056 |
| Q4 | (0.012) |
0.018 |
| 2006 Q1 | (0.023) |
(0.011) |
| Q2 | (0.032) |
(0.009) |
| Q3 | (0.039) |
(0.007) |
| Q4 | (0.022) |
0.017 |
| 2007 Q1 | 0.060 |
0.081 |
| Q2 | 0.188 |
0.128 |
| Q3 | 0.291 |
0.103 |
| Q4 | 0.437 |
0.146 |
| 2008 Q1 | 0.579 |
0.142 |
| Q2 | 0.640 |
0.061 |
| Q3 | 0.595 |
(0.044) |
| Q4 | 0.385 |
(0.210) |
| 2009 Q1 | (0.023) |
(0.409) |
| Q2 | (0.418) |
(0.394) |
| Q3 | (0.610) |
(0.192) |
| Q4 | (0.557) |
0.053 |
| 2010 Q1 | (0.302) |
0.254 |
| Q2 | (0.073) |
0.229 |
| Q3 | 0.022 |
0.095 |
| Q4 | 0.026 |
0.005 |
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 to Q3 2010.
Table 5. Composite LEI estimate updates
| Quarter | As first released | Updated as of Q4 2010 LEI report |
Difference |
Q1 2007 |
0.170 |
0.060 |
(0.110) |
Q2 2007 |
0.294 |
0.188 |
(0.106) |
Q3 2007 |
0.407 |
0.291 |
(0.116) |
Q4 2007 |
0.286 |
0.437 |
0.151 |
Q1 2008 |
0.456 |
0.579 |
0.123 |
Q2 2008 |
0.566 |
0.640 |
0.074 |
Q3 2008 |
0.451 |
0.595 |
0.144 |
Q4 2008 |
0.102 |
0.385 |
0.283 |
Q1 2009 |
(0.075) |
(0.023) |
0.052 |
Q2 2009 |
(0.195) |
(0.418) |
(0.223) |
Q3 2009 |
(0.425) |
(0.610) |
(0.184) |
Q4 2009 |
(0.640) |
(0.557) |
0.084 |
Q1 2010 |
(0.470) |
(0.302) |
0.168 |
Q2 2010 |
(0.348) |
(0.073) |
0.275 |
Q3 2010 |
(0.037) |
0.022 |
0.059 |
The composite LEI for Q3 2010 was revised upwards by 0.059. The composite LEI for all quarters of 2008 and 2009 as well as for the first to third quarters 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
Q2 2010 – 03 June 2010
Q3 2010 – 02 September 2010
_____________
1 See Table 4 for composite LEI estimates for Q1 2001 to Q4 2010 concurrently estimated for the Q4 2010 LEIS.
2 See Highlights of the Q3 2010 LEI report accessible at http://www.nscb.gov.ph/lei/2010/3Qlei/3rdQ10_LEI_highlights.asp See Table 5 for the revised/ updated LEI for Q1 2007 to Q3 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 contributions are based on the revised estimates concurrently estimated in Q4 2010.
5 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 fourth quarter 2010 estimation of the LEI, the indicators that changed contribution direction from third quarter to fourth quarter 2010 LEIS are as follows:
From negative to positive contribution:
|
From positive to negative contribution:
|
6 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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