Leading indicators improve in Q3

MANILA, Philippines - The composite leading economic indicator (LEI) improved in the third quarter of the year to 0.084 from a revised 0.066 in the second quarter of the year, the National Statistical Coordination Board (NSCB) reported yesterday.

The improvement put the LEI back to an increasing trend that started in the fourth quarter of 2009 but was disrupted in the second quarter of last year.

In terms of indicators, six of the 11 indicators that comprise the LEI contributed positively.

The positive contributors are the wholesale price index, the consumer price index, stock price index, foreign exchange rate, hotel occupancy rate and electric energy consumption.

“The combined share of positive contributors for this quarter increased to 55.6 percent from 48.2 percent in second quarter of 2011,” the NSCB reported.

On the other hand, indicators that dragged down the LEI are the total merchandise imports, money supply, terms of trade index, number of new businesses and tourist arrivals. These indicators accounted for 44.4 percent of total contribution.

The NSCB said from the revised second quarter to the third quarter LEI, there were two shifts in the direction of contribution.

The hotel occupancy rate shifted from negative to positive territory while merchandise imports moved from positive to negative.

The LEI is measured through the combined effects of different factors. These include the direction - the slope or change - of the cycle component of each indicator and the correlation of their cycle components with that of the reference series.

According to the NSCB, the index provides advance information on the direction of the country’s economic activity or performance in the short run.

It involves the study of the behavior of indicators that consistently move upward or downward before the actual expansion or contraction of overall economic activity. The system is based on an empirical observation that the cycles of many economic data series are related to the cycles of total business activity.

They expand in general when business is growing and contract when business is shrinking.