WORKSHOP ON SHORT-TERM ECONOMIC STATISTICS
8th OCTOBER 2014
HANGZHOU, CHINA
MALAYSIAN ECONOMIC INDICATORS
(MEI):
LEADING, COINCIDENT & LAGGING INDEXES
J A B ATA N P E R A N G K A A N M A L AY S I A
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S TAT I S T I C S ,
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OUTLINE
•
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Introduction
Objective
The Development of MEI
The Components of Composite Index
Analysis
Limitation
Current Development
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INTRODUCTION
• 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).
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INTRODUCTION
• It was used internally before it was published to
the public in January 2001.
• Consists of Leading, Coincident and Lagging for
Composite Indexes.
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INTRODUCTION
• 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.
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INTRODUCTION
• 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.
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INTRODUCTION
Growth Rate for Malaysia's Gross Domestic Products (GDP)
VS Coincident Index
15.0
r = 0.86
10.0
5.0
0.0
-5.0
-10.0
-15.0
GDP
CI
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INTRODUCTION
• 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.
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INTRODUCTION
Coincident Diffusion Index and Business Cycle
P
T
12/97 11/98
Per cent
100
P
T
2/01 2/02
P
1/08
T
3/09
50
0
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
Year
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OBJECTIVE
• 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.
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THE DEVELOPMENT OF MEI
No. Development Phase
Component
1 Initial
- Composite Leading
Development
Index
1993 - 1997
- Composite Coincident
Index
2 1st Improvement
- Review the existing
components
1998 - 2010
- Introducing Composite
Lagging Index
3 2nd Improvement
- Review the existing
components
2011 - present
- Introducing Diffusion
Indexes
Methodology
Moore-Shiskin
(1967)
(With trend
adjustment)
Moore-Shiskin
(1967)
(With trend
adjustment)
Conference Board
(Without trend
adjustment)
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THE COMPONENTS OF
COMPOSITE INDEX
• The selection is based on the guideline by the
Business Cycle Indicators Handbook, namely:
– Conformity to business cycle
– Consistent timing
– Economic significance
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THE COMPONENTS OF
COMPOSITE INDEX
– Statistical adequacy
– Smoothness
– Promptness
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THE COMPONENTS OF
COMPOSITE INDEX
• The selected time series then are tested using
Lead/Lag Table.
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THE COMPONENTS OF
COMPOSITE INDEX
• Lead-Lag Table for Peak and Trough - Bursa Malaysia
Industrial Index
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THE COMPONENTS OF
COMPOSITE INDEX
Bursa Malaysia Industrial Index (1970=100), January 1991 - March 2014
and Growth Cycle
160
P
01/92
T
01/93
P
01/98
T
01/99
P
08/00
T
02/02
P
04/04
T
11/05
T
P
01/08 03/09
P
T
03/12 09/12
12/96
Smoothed
Deviation from
Trend
12/07
140
03/04
03/00
120
10/10
04/02
100
80
60
02/03
08/92
06/06
11/12
12/08
04/01
08/98
1991:01
1991:07
1992:01
1992:07
1993:01
1993:07
1994:01
1994:07
1995:01
1995:07
1996:01
1996:07
1997:01
1997:07
1998:01
1998:07
1999:01
1999:07
2000:01
2000:07
2001:01
2001:07
2002:01
2002:07
2003:01
2003:07
2004:01
2004:07
2005:01
2005:07
2006:01
2006:07
2007:01
2007:07
2008:01
2008:07
2009:01
2009:07
2010:01
2010:07
2011:01
2011:07
2012:01
2012:07
2013:01
2013:07
2014:01
40
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Deviation from
Trend
COMPOSITE LEADING INDEX
No. Development Phase Composite Index
Component
1 Initial
Composite
1.Real Money Supply, M1
Development
Leading Index
2.Kuala Lumpur Industrial Stock
1993 - 1997
Price Index
3.CIBCR's 11 Countries Leading
Index
4.CPI for Services (Inverted),
Growth Rate
5.Industrial Material Price
Index, Growth Rate
6.Ratio Price to Unit Labour
Cost, Manufacturing
7.Housing Permits, Residential
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COMPOSITE LEADING INDEX
No. Development Phase Composite Index
Component
1.Real Money Supply, M1
2 1st Improvement
Composite
2.Kuala Lumpur Industrial Stock
Leading Index
1998 - 2010
Price Index
3.CIBCR's 11 Countries Leading Index
3.Real Total Traded, 8 Major Trading
Partners (USA, Singapore, Japan,
China, Thailand, Korea, Taiwan,
Hongkong)
4.CPI for Services (Inverted),
Growth Rate
5.Industrial Material Price Index,
Growth Rate
6.Ratio Price to Unit Labour Cost,
Manufacturing
7.Housing Permits, Residential
8.New Companies Registered
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COMPOSITE LEADING INDEX
No. Development Phase Composite Index
Component
1.Real Money Supply, M1
3 2nd Improvement
Composite
2.Kuala Lumpur Industrial Stock
Leading Index
2011 - present
Price Index
3.Real Total Traded, 8 Major Trading
Partners
4.CPI for Services (Inverted),
Growth Rate
5.Industrial Material Price Index,
Growth Rate
6.Ratio Price to Unit Labour Cost,
Manufacturing
3.Housing Permits, Residential
4.New Companies Registered
5.Real Imports of Semi Conductors
6.Real Imports of Other Basic
Precious and Other Non-ferrous Metal
7.Expected Sales Value,
Manufacturing
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COMPOSITE LEADING INDEX
No. Development Phase Composite Index
Component
1 Initial
Composite
1.Industrial Production Index
Development
Coincident
2.Real Gross Imports
1993 - 1997
Index
3.Real Salaries and Wages
4.Total Employment (Manufacturing
5.Real Sales (Manufacturing)
2 1st Improvement
1998 - 2010
Composite
Coincident
Index
1.Industrial Production Index
2.Real Gross Imports
3.Real Salaries and Wages
4.Total Employment (Manufacturing
5.Real Sales (Manufacturing)
6.Real Contribution, Employment
Provident Fund (EPF)
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COMPOSITE LEADING INDEX
No. Development Phase Composite Index
Component
3 2nd Improvement
Composite
1.Industrial Production Index
Coincident
2.Real Gross Imports
2011 - present
Index
2.Real Salaries and Wages
3.Total Employment (Manufacturing
5.Real Sales (Manufacturing)
4.Real Contribution, Employment
Provident Fund (EPF)
5.Capacity Utilisation,
Manufacturing
6.Volume Index of Retail Trade
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COMPOSITE LEADING INDEX
No. Development Phase Composite Index
Component
1.7-day Call Money, Rate (Inverted)
2 1st Improvement Composite
Lagging Index 2.Real Excess Lending to Private
1998 - 2010
3.Investment Project Approved,
Number
4.Number of Defaulters, EPF
(Inverted)
5.New Vehicles Registered
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COMPOSITE LEADING INDEX
No. Development Phase Composite Index
Component
1.7-day Call Money, Rate (Inverted)
3 2nd Improvement
Composite
2.Real Excess Lending to Private
Lagging Index
2011 - present
1.Investment Project Approved,
Number
4.Number of Defaulters, EPF
(Inverted)
2.New Vehicles Registered
3.Unit Labour Cost, Manufacturing
4.Exports of Natural Gas and Crude
Oil
5.CPI for Services
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ANALYSIS
• 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.
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ANALYSIS
No. Method of Analysis 1993 - 2010
1
Growth Cycle
2
Classical/Business Composite
Cycle
Indexes
2011 - Present
Phase Average HodrickTrend
Prescott
75-terms
Filter
Moving Average
Composite and
Diffusion
Indexes
J A B ATA N P E R A N G K A A N M A L AY S I A
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S TAT I S T I C S ,
M A L AY S I A
1970:01
1971:01
1972:01
1973:01
1974:01
1975:01
1976:01
1977:01
1978:01
1979:01
1980:01
1981:01
1982:01
1983:01
1984:01
1985:01
1986:01
1987:01
1988:01
1989:01
1990:01
1991:01
1992:01
1993:01
1994:01
1995:01
1996:01
1997:01
1998:01
1999:01
2000:01
2001:01
2002:01
2003:01
2004:01
2005:01
2006:01
2007:01
2008:01
2009:01
2010:01
2011:01
2012:01
2013:01
2014:01
ANALYSIS
Determination of Peaks and Troughs for Growth Cycle
Coincident Index and Growth Cycle, January 1970 - July 2014
140
120
100
80
60
40
20
0
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ANALYSIS
Malaysian Growth Cycles Reference Periods
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1970:01
1971:01
1972:01
1973:01
1974:01
1975:01
1976:01
1977:01
1978:01
1979:01
1980:01
1981:01
1982:01
1983:01
1984:01
1985:01
1986:01
1987:01
1988:01
1989:01
1990:01
1991:01
1992:01
1993:01
1994:01
1995:01
1996:01
1997:01
1998:01
1999:01
2000:01
2001:01
2002:01
2003:01
2004:01
2005:01
2006:01
2007:01
2008:01
2009:01
2010:01
2011:01
2012:01
2013:01
2014:01
ANALYSIS
Determination of Peaks and Troughs for Business Cycle
Coincident Index and Business Cycle, January 1970 - July 2014
140
120
100
80
60
40
20
0
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ANALYSIS
Malaysian Business Cycles Reference Periods
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LIMITATION
• 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).
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LIMITATION
• The economic indicators unable to take into
account the internal or/and external shock to the
economy.
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CURRENT DEVELOPMENT
• Review the existing components.
• Identify and evaluate new potential time series
data.
• Develop Malaysian Business Cycle Clock
(MBCC).
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WAN SITI ZALEHA BINTI WAN ZAKARIA
DEPARTMENT OF STATISTICS, MALAYSIA
ECONOMIC INDICATORS DIVISION
wszwz@stats.gov.my
http://www.statistics.gov.my
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THANK YOU
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