MALAYSIAN ECONOMIC INDICATORS (MEI): LEADING, COINCIDENT & LAGGING INDEXES WORKSHOP ON SHORT-TERM ECONOMIC STATISTICS 8 th OCTOBER 2014 HANGZHOU, CHINA

MALAYSIAN ECONOMIC INDICATORS MALAYSIAN ECONOMIC INDICATORS (MEI): (MEI):

LEADING, COINCIDENT & LAGGING INDEXESLEADING, COINCIDENT & LAGGING INDEXES

WORKSHOP ON SHORT-TERM ECONOMIC STATISTICS8th OCTOBER 2014HANGZHOU, CHINA

JABATAN PERANGKAAN MALAYSIADEPARTMENT OF STATISTICS, MALAYSIA

OUTLINEOUTLINE

• Introduction

• Objective

• The Development of MEI

• The Components of Composite Index

• Analysis

• Limitation

• Current Development


• The initial development of Business Cycle Indicators (BCI) was started in September 1993.

• In 1995, the first set of BCI was developed comprises of two composite indexes: the Coincident Index and the Leading Index using the methodology known as Moore-Shiskin (with trend adjustment).

INTRODUCTIONINTRODUCTION


• It was used internally before it was published to the public in January 2001.

• Consists of Leading, Coincident and Lagging for Composite Indexes.



• While the Diffusion Indexes consists of Diffusion Indexes for Leading and Coincident.

• The Leading Index (LI) measures anticipations of the overall economic activity in the months ahead.



• The Coincident Index (CI) is a comprehensive measure of the overall current economic performance.

• Study shows that there is strong relationship between CI and GDP (r = 0.86).

• The CI is also used to date the business cycles reference periods recession and recovery) in Malaysia.



r = 0.86



• The Lagging Index is to validate the signal of the Leading and Coincident Indexes.

• The Diffusion Index is a complement to the Composite Index and used to assist in making a decision especially in determining turning point of economic cycle.



Coincident Diffusion Index and Business Cycle

0

50

100

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

P12/97

T11/98

P2/01

T2/02

P1/08

T3/09

Per cent

Year



• To identify the cyclical phase and the direction of near term economy.

• To monitor Malaysian economic performance on a monthly basis.

• To assist the policy makers, investors, researchers and public to assess the economic performance.

OBJECTIVEOBJECTIVE


No. Development Phase Component Methodology1 Initial

Development1993 - 1997

- Composite Leading Index- Composite CoincidentIndex

Moore-Shiskin(1967)(With trend adjustment)

2 1st Improvement1998 - 2010

- Review the existing components- Introducing Composite Lagging Index

Moore-Shiskin(1967)(With trend adjustment)

3 2nd Improvement2011 - present

- Review the existing components- Introducing Diffusion Indexes

Conference Board(Without trend adjustment)

THE DEVELOPMENT OF MEITHE DEVELOPMENT OF MEI


• The selection is based on the guideline by the Business Cycle Indicators Handbook, namely:– Conformity to business cycle– Consistent timing– Economic significance

THE COMPONENTS OFTHE COMPONENTS OFCOMPOSITE INDEXCOMPOSITE INDEX


– Statistical adequacy– Smoothness– Promptness



• The selected time series then are tested using Lead/Lag Table.



• Lead-Lag Table for Peak and Trough - Bursa Malaysia Industrial Index





No. Development Phase Composite Index Component1 Initial


Composite Leading Index

1.Real Money Supply, M12.Kuala Lumpur Industrial Stock Price Index 3.CIBCR's 11 Countries Leading Index4.CPI for Services (Inverted), Growth Rate5.Industrial Material Price Index, Growth Rate6.Ratio Price to Unit Labour Cost, Manufacturing7.Housing Permits, Residential


COMPOSITE LEADING INDEXCOMPOSITE LEADING INDEX

No. Development Phase Composite Index Component2 1st Improvement

1998 - 2010


1.Real Money Supply, M12.Kuala Lumpur Industrial Stock Price Index 3.CIBCR's 11 Countries Leading Index3.Real Total Traded, 8 Major Trading Partners (USA, Singapore, Japan, China, Thailand, Korea, Taiwan, Hongkong)4.CPI for Services (Inverted), Growth Rate5.Industrial Material Price Index, Growth Rate6.Ratio Price to Unit Labour Cost, Manufacturing7.Housing Permits, Residential8.New Companies Registered



No. Development Phase Composite Index Component3 2nd Improvement

2011 - present


1.Real Money Supply, M12.Kuala Lumpur Industrial Stock Price Index 3.Real Total Traded, 8 Major Trading Partners4.CPI for Services (Inverted), Growth Rate5.Industrial Material Price Index, Growth Rate6.Ratio Price to Unit Labour Cost, Manufacturing3.Housing Permits, Residential4.New Companies Registered 5.Real Imports of Semi Conductors6.Real Imports of Other Basic Precious and Other Non-ferrous Metal7.Expected Sales Value, Manufacturing



No. Development Phase Composite Index Component1 Initial


Composite CoincidentIndex

1.Industrial Production Index2.Real Gross Imports3.Real Salaries and Wages4.Total Employment (Manufacturing5.Real Sales (Manufacturing)

2 1st Improvement1998 - 2010


1.Industrial Production Index2.Real Gross Imports3.Real Salaries and Wages4.Total Employment (Manufacturing5.Real Sales (Manufacturing)6.Real Contribution, Employment Provident Fund (EPF)




2011 - present


1.Industrial Production Index2.Real Gross Imports2.Real Salaries and Wages3.Total Employment (Manufacturing5.Real Sales (Manufacturing)4.Real Contribution, Employment Provident Fund (EPF)5.Capacity Utilisation, Manufacturing6.Volume Index of Retail Trade



No. Development Phase Composite Index Component2 1st Improvement

1998 - 2010

Composite Lagging Index

1.7-day Call Money, Rate (Inverted)2.Real Excess Lending to Private 3.Investment Project Approved, Number4.Number of Defaulters, EPF (Inverted)5.New Vehicles Registered




2011 - present

Composite Lagging Index

1.7-day Call Money, Rate (Inverted)2.Real Excess Lending to Private 1.Investment Project Approved, Number4.Number of Defaulters, EPF (Inverted)2.New Vehicles Registered3.Unit Labour Cost, Manufacturing4.Exports of Natural Gas and Crude Oil5.CPI for Services



• The growth cycle is a fluctuation of the aggregated economic activity along its long term trend. The growth is generated through the deviation of index from its long term trend.

• Business cycle is a fluctuation of the aggregated economic activity. There are two main phases namely expansion and recession phases.

24JABATAN PERANGKAAN MALAYSIADEPARTMENT OF STATISTICS, MALAYSIA

ANALYSISANALYSIS

No. Method of Analysis 1993 - 2010 2011 - Present

1 Growth Cycle Phase Average Trend 75-terms Moving Average

Hodrick-Prescott Filter

2 Classical/BusinessCycle

Composite Indexes

Composite and Diffusion Indexes


ANALYSISANALYSIS

Determination of Peaks and Troughs for Growth Cycle

26JABATAN PERANGKAAN MALAYSIADEPARTMENT OF STATISTICS, MALAYSIA

ANALYSISANALYSIS

Malaysian Growth Cycles Reference Periods


ANALYSISANALYSIS

28

Determination of Peaks and Troughs for Business Cycle


ANALYSISANALYSIS

Malaysian Business Cycles Reference Periods


ANALYSISANALYSIS

• The LI is unable to measure or predict the magnitude of any changes of economic activity. The index shows the direction of the economy in advance.

• The CI does not represent the level of the current economic situation. Thus it should not be interpreted as the level of current monthly Gross Domestic Product (GDP).


LIMITATIONLIMITATION

• The economic indicators unable to take into account the internal or/and external shock to the economy.


LIMITATIONLIMITATION

• Review the existing components.• Identify and evaluate new potential time series

data.• Develop Malaysian Business Cycle Clock

(MBCC).


CURRENT DEVELOPMENTCURRENT DEVELOPMENT

WAN SITI ZALEHA BINTI WAN ZAKARIAWAN SITI ZALEHA BINTI WAN ZAKARIADEPARTMENT OF STATISTICS, MALAYSIADEPARTMENT OF STATISTICS, MALAYSIA

ECONOMIC INDICATORS DIVISIONECONOMIC INDICATORS DIVISION

[email protected]://www.statistics.gov.my


mailto:[email protected]

http://www.statistics.gov.my/

THANK YOUTHANK YOU


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MALAYSIAN ECONOMIC INDICATORS (MEI): LEADING, COINCIDENT & LAGGING INDEXES WORKSHOP ON SHORT-TERM ECONOMIC STATISTICS 8 th OCTOBER 2014 HANGZHOU, CHINA