May CLIEAC indicates economic recovery in China
CLIEAC is available as daily data on Alphien
This report presents the May 2019 update on the Commodity Leading Index Economic Activity China (CLIEAC, see Appendix for index description).
Recovery As indicated by our CLIEAC, the Chinese economy is recovering. Manufacturing conditions is stable in April, as reflected by the PMI figures (Caixin/Markit PMI down from 50.8 to 50.2; NBSC PMI down from 50.5 to 50.1). April’s trade data saw exports fell 2.7% yoy, a sharp reversal from the 13.8% rise in March, amid escalating trade war with the U.S. while imports rebounded slightly by climbing 4.0% yoy, reversing part of the 7.9% drop in March. RMB depreciated against the basket of currencies of main trade partners over the month. Correspondingly, as shown in the Swirlogram, the CLIEAC places overall economic activity in a Recovery mode. The monthly index average moved by -0.03 over the month to -0.33 (one year range is - 0.4 to 0.73). The current quarter average of -0.31 is above the previous quarter average of -0.36 and below the yearly average of 0.03.
CLIEAC Components Over the previous period 4 component of the CLIEAC increased, 7 remained within the momentum range of +/-0.3 standard deviations (s.d.) and 3 decreased. Less than half of the components (6 out of 14) remain above their long-run average of zero. On the positive side, Imports experienced the largest increase of +0.75 s.d., followed by Fixed Asset Investment Real Estate and Railway Freight Traffic. On the negative side, Fixed Asset Investment Manufacturing exhibited the largest drop of -0.79 s.d. followed by Fiscal Revenue.
Nowcasting GDP The CLIEAC has been a good indicator for overall economic activity as measured by yoy GDP growth. Using the CLIEAC as predictor in our nowcasting model substantially improves estimates of current quarter GDP relative to the benchmark autoregressive (AR) model. Based on current economic activity as reflected by the CLIEAC, the point estimate for the second quarter in 2019 yoy GDP growth is 6.39% with the lower and upper 90% confidence bounds at 6.21% and 6.57% respectively.
Appendix: Index Composition The Commodity Leading Index Economic Activity China (CLIEAC) is a composite index that provides a measure of overall economic activity in China. The index consists of a equally weighted basket of components which reflect fundamental data related to economic activity. Each index component is Chinese New Year calendar effect-, trend- and seasonally adjusted, smoothed, normalized and updated in the index as new data becomes available. The rolling standard score (Zscore) approach is applied to normalize each component before aggregation. As such, a reading above zero indicates expansion and below zero contraction of economic activity relative to the long-run average. Upwards and downwards movements of the index indicate improving and deteriorating economic activity respectively. The CLIEAC is composed of 14 components covering supply- and demand- side factors across five categories.
- Production: Electricity Production, Fiscal Revenue, Caixin/Markit and NBSC Purchasing Manager Index
- Transportation: Port Freight Traffic, Railway Freight Traffic
- Trade: Total Imports, Total Exports
- Consumption: Retail Sales, Real Estate Sales, Vehicle Sales
- Investments: Fixed Assets Investment Real Estate and Manufacturing, Foreign Direct Investments
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