Tuesday, November 15, 2011

Philippine Economy: Leading Economic Indicator

As a fundamentalist, it is very important for us to understand how companies do business and how they relate to the economy. Depending on the industry, it may vary on case-to-case basis. Of course generally, when the economy is down companies do follow the same direction as well. But looking into a company level point of view, understanding their business may give us clues on which would survive a downturn considering all the factors involved like competitors, commodities, demand and etc. Just a few weeks ago, I stumbled upon one indicator that I find very useful and interesting.
I am suprised that there's such entity in our country that does this for the public's right for information. Anyway, it is called the Leading Economic Indicator provided by the National Statistical Coordination Board(NSCB). It is a composite economic indicator that comprise of 11 individual indicators from which 7 are positive contributors while the other 4 contribute the opposite. The positive contributors would include: number of new businesses, visitor arrivals, consumer price index, hotel occupancy rate, foreign exchange rate, stock price index, and electric energy consumption. And of course, the other 4 would be the following: total mercandise imports, wholesale proce index, terms of trade index, and lastly money supply.

These indicators included have difference correlation coefficients, in lay man's term, these have different weights depending on its effect in our economy. As a whole, it forms the Leading Economic Indicator(LEI). Now, looking at the indicators composed in the LEI, I think these things are really important in gauging what is really happening in our economy. On a quarterly basis, NSCB publishes a value of LEI. A positive slope means that it is improving and therefor it is a positive sign for our economy.

I find this very useful especially if you want to look at the Philippines in a macroeconomic level. A good tool deifnitely when comes to making decisions in investments specially in the stock market. For more information here's the latest LEI for Q4 2011

I hope this helps to all fundamental guys out there. :)