Index forecasts slow activity

Press, 26 July 1989, Page 33

Index forecasts slow activity

The National Bank’s Leading Index of economic activity indicates slow economic activity over the next few months. The first of the regular monthly release by the National Bank includes coincident and leading indices of economic activity. The Coincident Index is constructed from economic indicators (such as GDP and unemployment) which represent the current state of the economy and is designed to show whether the economy is at a cyclical trough, or peak — or possibly at a point of transition between the two states.

The Leading Index is designed to predict the future movements of the Coincident Index. It brings together indicators (such as building permits and overseas orders) that are “forward looking” — which anticipate future changes in economic activity). National Bank economists point out that although the Leading Index has been trending upward from mid--1988, the Index has been constrained within a flat range since November, 1988. This points to ensuing slow economic activity over the next few months, as measured by the Coincident Index.

National Bank economists work with the Centre for International Business Cycle Research (CIBCR) at the Columbia University in New York in constructing these indices. The CIBCR compiles equivalent monthly indices for other industrial coun-

tries. From now on, the CIBCR will be publishing the New Zealand indices in its monthly publication. There are other regularly published activity indices in existence in New Zealand, such as the one constructed by the Economic Research Group at Otago University. However, this is a first attempt to produce coincident and leading indices based on internationally accepted techniques,