Highlights of the Fourth Quarter 2011 LEIS
Leading Economic Indicator (LEI) continues to accelerate
in the fourth quarter 2011
(Posted 09 November 2011)
The composite leading economic indicator (LEI) continued to rebound in the fourth quarter of 2011 to 0.168 1 from a revised 0.116 2 in the third quarter of 2011. The fourth quarter LEI gathered acceleration after it weakened in the second quarter this year
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 Q4 2011
Table 1 below shows the composite LEI estimates and the corresponding slopes for the period first quarter 2001 to third quarter 2011. 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 Q4 2011
Of the eleven indicators that make up the composite LEI, seven contributed positively. The positive contributors include, starting with the largest positive contributor: (1) number of new businesses, (2) visitor arrivals 3, (3) consumer price index, (4) hotel occupancy rate, (5) foreign exchange rate, (6) stock price index and (7) electric energy consumption. The combined share of positive contributors for this quarter increased to 65.5 percent from 55.6 percent in Q3 2011.
On the other hand, the negative contributors, beginning with the largest negative contributor, were: (1) total merchandise imports, (2) wholesale price index, (3) terms of trade index, and (4) money supply. The negative contributors accounted for 34.5 percent of total contribution (Table 2).
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 2 shows the share to total contribution of the positive and negative contributors.
Table 2. Contributions of the leading economic indicators: Fourth quarter 2011 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 2008 to Q4 2011 as first released.
For the Q4 2011 LEI, seven out of the eleven indicators contributed positively to the composite index. Moreover, there were three shifts in the direction of contribution from the third quarter to the fourth quarter LEI: number of new businesses and visitor arrivals, from negative to positive, and wholesale price index, from positive to negative.
Table 3. Contribution direction 4 of the leading economic indicators:
Q1 2008 to Q4 2011
The top two positive and top two negative contributors to the composite LEI for the fourth quarter of 2011 are: number of new businesses and visitor arrivals; and total merchandise imports and wholesale price index, respectively. In the Q3 2011 LEI estimation, the top two positive contributors were wholesale price indexand consumer price index, while the top negative contributors were total merchandise imports and money supply.
The following plots show the levels 5 and cycles of the positive contributors followed by the negative contributors:
1. Number of New Businesses
With one-quarter lead period, number of new businesses slowed down to a 2.0 percent growth in Q3 2011 from 6.8 percent in Q2 2011. Despite the deceleration, number of new businesses became the top positive contributor of the composite LEI during the quarter.
2. Visitor Arrivals
The uninterrupted growth of visitor arrivals that started in Q4 2009 placed visitor arrivals as the second top positive contributor of the LEI. Leading by one quarter, the upward trend in visitor arrivals is gaining momentum.
3. Consumer Price Index
Having an inverse relationship to GDP and leading by ten quarters, consumer price index continued to pull up the composite LEI as prices of commodities continued to decelerate in Q2 2009. CPI year-on-year growth has been on a downward trend since Q4 2008 by 9.7 percent, 6.9 percent in Q1 2009, and 3.2 percent in Q2 2009.
4. Hotel Occupancy Rate
With two quarters lead, the increase in hotel occupancy rate by 0.8 percentage points in Q2 2011 from 67.5 in Q2 2010 to 68.3 has placed the indicator among the positive contributors. Hotel occupancy rate has been contributing positively to the composite LEI for two consecutive quarters.
5. Foreign Exchange Rate
With an inverse relationship to GDP and leading by one quarter, foreign exchange rate has been contributing positively to the composite index since Q4 2009 but was interrupted in the second quarters of 2010 and 2011. The foreign exchange rate has been going down for the past eight quarters, recording a 5.6 percent decline in the third quarter of 2011 at PhP 42.7 per US dollar from PhP45.3 in Q3 2010.
6. Stock Price Index
Stock price index has consistently been contributing positively to the composite index for seven consecutive quarters starting in Q2 2010 after six quarters of continued negative contribution. Leading by one quarter, stock price index gained momentum in Q4 2009.
Electric energy consumption shifted to being a positive contributor after two consecutive quarters of negative contribution to the index that started in Q1 2011. Leading by one quarter, the year on year growth of electric energy consumption showed almost stationary movement for 20116 , but sufficient to pull up the composite index.
1. Total Merchandise Imports
The decelerating growth of total merchandise imports which started in Q1 2011 placed it as the top negative contributor to the Q4 2011 LEI. After two quarters of contributing positively to the composite LEI, total merchandise imports shifted direction and became the top negative contributor to the index in the third and fourth quarters 2011.
2. Wholesale Price Index
After three quarters of contributing positively to the composite LEI, wholesale price index (WPI), shifted direction and pulled down the LEI in Q4 2011.
3. Terms of Trade Index
With an inverse relationship to GDP and leading by ten quarters, terms of trade index registered three consecutive quarters of increases since Q4 2008 to Q2 2009 after a series of declines since Q2 2005. The indicator has contributed negatively to the LEI starting in Q2 2011.
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.
4. Money Supply
Money supply has been on downward trend since Q1 2011, placing it among the negative contributors for the past five quarters. Leading by one quarter, money supply slowed down by 3.6 percent in Q1 2011, 2.8 percent in Q2 2011, and an estimated 2.47 percent in Q3 2011.
Table 4 shows the cycle estimates, slopes, correlation coefficients, contribution values and lead periods of the 11 indicators for the third quarter 2011 and fourth quarter 2011 (concurrently estimated for fourth quarter 2011 LEIS).
Table 4. Cycles, Slopes, Correlation coefficients, and Lead Periods
of the 11 Leading Indicators with the Non-Agriculture GVA
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.
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 Q3 2011. Figure 3 plots the comparison for the same period.
Table 5. Composite LEI estimate updates
Looking at the past estimates, the composite LEI was revised as follows: 2007, downwards by an average of 0.043; 2008, upwards by an average of 0.001; 2009, downwards by an average of 0.083; 2010, upwards by an average of 0.151; and first three quarters of 2011, upwards by an average of 0.030.
The composite LEI for the first, second and third quarters of 2011 were released as follows:
Q1 2011 – 10 February 2011
Q2 2011 – 31 March 2011
Q3 2011 – 14 September 2011
1 See Table 1 for composite LEI estimates for Q1 2001 to Q4 2011 concurrently estimated for the Q4 2011 LEIS.
2 See Table 5 for the revised/ updated LEI for Q1 2007 to Q3 2011. 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 Per IRTS 2008 recommendations, tourist arrivals will now be called visitor arrivals
4 The contribution direction (i.e., negative or positive contribution) of each of the eleven indicators may change each quarter the LEI is estimated. For the fourth quarter 2011 estimation of the LEI, the indicators that changed contribution direction from third quarter to fourth quarter 2011 LEIS are as follows:
From negative to positive: Number of New Businesses
From positive to negative: Wholesale Price Index
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.
6 2011 figures are forecasted using X11 ARIMA
7 Based on the forecast using X11 ARIMA