Leading indicator on the up

Johannesburg - The seasonally adjusted leading economic indicator in South Africa has risen to 109.7 in June from the revised 107.8 (107.2) of May. It is now the third monthly rise in a row after a long bout in the wilderness.

The indicator is, however, down 10.1% year-on-year (y/y), but even on this basis it is better than the -13.1% y/y in May, and better still than the 19.1% y/y drop in March. The leading indicator was at a still-elevated 122 in June 2008.

This index provides a barometer of economic growth for at least six months ahead.

The leading indicator had been over 120 and nearer to 130 for the whole of 2007.

The coincident indicator for May was reported at 135.3 from a revised 135.4 (137.1) in April.

The lagging indicator was reported at 122.1 from a revised 124.3 (129.6) in April.

The drastic declines in South Africa's leading and coincident economic indicators had cemented the idea that South Africa is in a recession. And this was borne out in no uncertain terms when news broke of a ?4.6% GDP decline in Q1 from -1.8% before. In line with the leading indicator, a still negative, but slightly better GDP figure was seen in the second quarter and this transpired via a reading of -3.0% on August 18.

The coincident indicator is an economic factor that varies directly and simultaneously with the business cycle, thus indicating the current state of the economy. The lagging indicator changes after the economy has already begun to follow a particular trend and February's decline was the first one recorded this year.

The Sarb uses over 200 economic time series to determine the turning points of the South African business cycle. Using these indicators, the leading, coincident and lagging composite business cycle indices are produced that indicate the direction of the change in economic activity rather than the level of economic activity.

- I-Net Bridge