Leading Economic Indicator (LEI) slides in the first quarter of 2014

Released Date:
Monday, February 17, 2014

The composite leading economic indicator (LEI) exhibited a downward direction in the first quarter of 2014, posting 0.0371 from a revised 0.1412 in the fourth quarter of 2013.  This indicates that the country’s economic activity may slow down during the quarter.  (Figures 1 and 2 and Table 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: Q1 1995 to Q1 2014

Source: Philippine Statistics Authority

Table 1 below shows the composite LEI estimates and the corresponding slopes for the period first quarter 2001 to first quarter 2014. 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 Q1 2014


Of the 11 indicators that make up the composite LEI, three contributed positively.  The positive contributors include, starting with the largest positive contributor: (1) number of new businesses, (2) terms of trade index, and (3) consumer price index.  The combined share of positive contributors for this quarter accounted for 27.3 percent of the total contribution, decreasing from 77.6 percent in the fourth quarter of 2013.
On the other hand, the negative contributors, beginning with the largest negative contributor, are: (1) total merchandise imports, (2) stock price index, (3) money supply, (4) visitor arrivals, (5) foreign exchange rate, (6) electric energy consumption, (7) wholesale price index, and (8) hotel occupancy rate.  The negative contributors accounted for 72.7  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:
First quarter 2014 LEIS
Source: Philippine Statistics Authority 
 *  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 the list of the direction of contribution of the 11 indicators from Q1 2009 to Q1 2014 as first released.
For the Q1 2014 LEI, six indicators shifted direction in contribution from the fourth quarter of 2013, namely: consumer price index from negative to positive, electric energy consumption from positive to negative, hotel occupancy rate from positive to negative, total merchandise imports from positive to negative, money supply from positive to negative, stock price index from positive to negative, and wholesale price index from positive to negative
Table 3.   Contribution direction3 of the leading economic indicators: Q1 2009 to Q1 2014

The top two positive and top two negative contributors to the composite LEI for the first  quarter of 2014 are:  number of new businesses and terms of trade index, and total merchandise imports and stock price index, respectively.  In the Q4 2013 LEI estimation, the top two positive and top two negative contributors to the composite LEI  were:  money supply and wholesale price index, and foreign exchange rate and visitor arrivals, respectively.
The following plots show the levels4 and cycles of the positive contributors followed by the negative contributors:
Positive contributors          
1. Number of New Businesses
With a three-quarter lead period, the number of new businesses grew by 32.1 percent in  Q2 2013 and became the top positive contributor to the LEI.  Number of new businesses  has been a positive contributor since Q1 2013.


2.Terms of Trade Index
With a lead period of ten quarters and an inverse relationship to GDP, terms of trade index remains to be a positive contributor to the composite index in Q1 2014. Terms of trade index declined by 3.1 percent in Q3 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.
3.Consumer Price Index
Having an inverse relationship to GDP and leading by three quarters, consumer price index (CPI) grew by 2.7 percent in Q2 2013.  After three quarters of  contributing negatively to the LEI, the CPI became a positive contributor in Q1 2014.


Negative contributors
1.Total Merchandise Imports
Total merchandise imports became the top negative contributor to the Q1 2014 composite index after two succeeding quarters of contributing positively.  Leading by one quarter, total merchandise imports declined by 7.9 percent in the fourth quarter of 2013.
2.Stock Price Index
Leading by one quarter, the stock price index increased to 6,228.0 in Q4 2013 from 5,625.9  in Q4 2012 or an increase of 10.7 percent.  After contributing positively to the composite index for several quarters, stock price index became a negative contributor in Q1 2014.


3.Money Supply
After three quarters of positive contribution to the index, money supply changed direction and became a negative contributor to the Q1 2014 composite index. Leading by one quarter, money supply increased by 4.2 percent in Q4 2013.  However, its contribution is negative 0.349 which is 13.9 percent of the total contribution. 
Money supply consists of currency in circulation and peso deposits subject to check of the monetary system.
4.Visitor Arrivals
Visitor arrivals continued  to be a negative contributor to the Q1 2014 composite index.   With a two-quarter lead period, visitor arrivals grew by 12.1 percent in Q3 2013.  Its contribution,  however, is negative  0.331 or  15.4 percent share to the total contribution.


5.Foreign Exchange Rate
With a one-quarter lead period and having an inverse relationship to GDP, foreign exchange rate continued to be a negative contributor since Q3 2013.  Foreign exchange rate  registered a 5.9 percent growth in the fourth quarter of 2013 at PhP 43.61 per US dollar from PhP 41.19 in Q4 2012.


6.Electric Energy Consumption
Electric energy consumption contributed negatively to the index after being a positive contributor three quarters in a row.  With a two-quarter lead,  electric energy consumption posted a 6.0 percent growth in Q3 2013. 


7.Wholesale Price Index
After contributing positively to the index in the last quarter, wholesale price index reversed  direction to become a negative contributor to the Q1 2014 index.  Having a lead of eight quarters, wholesale price index grew by 3.1 percent in Q1 2012.


8.Hotel Occupancy Rate
Leading by three quarters, hotel occupancy rate which covers only Metro Manila hotels  inched up by 1.8 percent in Q2 2013.  After being a positive contributor in the last two quarters, hotel occupancy rate contributed negatively at 0.010 or 1.6 percent share of the total contribution.
Table 4 shows the cycle estimates, slopes, correlation coefficients, contribution values and lead periods of the 11 indicators for the fourth quarter of 2013 and first quarter of 2014 (concurrently estimated for first quarter 2014 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 Q4 2013.
Table 5.  Composite LEI estimate updates


The composite LEI for Q4 2013 was revised downward by 0.078 resulting still to a positive index of 0.103.
The previous quarterly LEI Reports were released as follows:
Q1 2012 – 18 January 2012 
Q2 2012 – 21 June 2012
Q3 2012 – 23 August 2012
Q4 2012 – 29 October 2012 
Q1 2013 – 26 February 2013
Q2 2013 -  25 April 2013
Q3 2013 – 23 July 2013
Q4 2013 – 24 October 2013


1 See Table 1 for composite LEI estimates for Q1 2001 to Q1 2014 concurrently estimated for the Q1 2014 LEIS.
2 See Table 5 for the revised/updated LEI for Q1 2007 to Q1 2014. The estimates are continuously updated when revised or more recent data become available.
3 The contribution direction (i.e., positive or negative contribution) of each of the 11 indicators may change each quarter the LEI is estimated.  For the first quarter 2014 estimation of the LEI, the indicators that changed contribution direction from fourth quarter 2013 to first quarter 2014 LEIS are as follows:
From positive to negative:                  Electric energy consumption 
                                                        Hotel occupancy rate
                                                        Total merchandise imports
                                                        Money supply
                                                        Stock price index
                                                        Wholesale price index
From negative to positive:                  Consumer price index
Also, the contributions are based on the revised estimates concurrently estimated in Q1 2014. The number of positive and negative contributors in the previous quarters as presented in past reports may be revised every quarter when the LEI is estimated.
4 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.