Abstract

This study dealt with the identification of leading economic indicators and the development of a composite lead index of business cycles for the Philippines using quarterly time series data for 1981 - 1990. Results of both the cyclical and correlation methods yielded seven leading indicators of economic activity; namely, money supply, imports, building permits, electric energy consumption, number of new business incorporations, composite stock price index, and inventory of consumer durable raw materials. The lead periods of these indicators ranged from one quarter to four quarters. The composite lead index derived from these leading indicators could forecast the direction or change of economic activity one quarter ahead with an accuracy rate of 89%. Although still at the initial stage of development, the study can be used to monitor the immediate impact, positive or negative, of supply or productivity shocks. Applying the diffusion index approach, simply monitoring the direction of movement of the majority of the leading indicators on a monthly/quarterly basis will give a general picture of the economy with immediate future, i.e., one or two quarters ahead.