PORT OF SAIN, Trinidad, Jan. 27, 2006, CaribbeanINVESTOR -- The Trinidad and Tobago economy is likely to experience "moderate growth" in February 2006, according to the analysts at the Research Centre at Caribbeam Money Market Brokers Limited.

Their outlook is based on the company's recently launched Composite Leading Indicator (CLI) The CLI is intended to provide a monthly signal of movements in economic activity. CMMB's Chief Economist Jwala Rambarran was careful to emphasise that these "signals"are neither projections nor predictions, but leading indicators signalling what is "likely" to happen, without giving actual numbers.  "It talks about where the econonmy is likely to be, what the strength of growth is likely to be, but it doesn't give you a number." 

A CMMB release says the CLI stood at 151.99 at the end of the third week in January 2006, which its analysts say represented a decline of 0.3 percent from December 2005. The "diffusion index," which measures the proportion of indicator series that are rising," remained unchanged at 50%, suggesting "balanced prospects" in February. 

Rambarran says this indicates there was a moderation of economic activity from December 2005 to January 2006, adding, "That's typical of the business cycle in Trinidad."

One of the important keys to the CLI is the "diffusion index" which monitors five indicators, observing which are rising and which are declining. If the indicators are rising, this suggests that  the level of economic activity will continue to go forward. "If the diffusion index says 50, then it means that half are rising and half are not, " he explains. "The prospects then of this growth going forward are balanced - evenly balanced."

The diffusion index is distilled from three main contributors:
• Trinidad and Tobago Stock Exchange Composite Index
• Production of Cement
• Production of Methanol

The analysts observed that stock market sentiment had weakened further, suggesting little improvement in investor confidence;  shortages in cement production are weighing heavily on the construction sector, but output is expected to return to normalcy within a matter of weeks and the new M5000 Methanol plant is set to complete a full year of production. These measures will remain the same, except for the methanol production figures.

Rambarran says the CLI has moved away from using the methanol production figures and will replace it  with the production of Liquefied Natural Gas. There are not expected to be any further changes in the composition of the indicators, though the Research Centre is keeping 5 other series in reserve in case it does, because of some dire and exceptional circumstance, become necessary to replace one of its indicators. 

The rolling together of these "indicator series" into a single measure which will supply users with a signal of the likelihood of future upturns or downturns in the economy, CMMB says, "provides a measure that is decomposable so that performance can be precisely attributed to a particular sector. Additionally, movement in the CMMB CLI has a precise, calibrated meaning. As an indicator, the defining characteristic of the CMMB CLI is that it quantifies and simplifies information in a manner that promotes understanding of the economy to both decision-makers and the general public.The CMMB CLI represents a practical and realistic compromise between scientific accuracy, information availability and reasonable cost."

But how accurate is it? Rambarran says the CLI's accuracy can only determined when the Central Bank releases its Quarterly Real Gross Domestic Product Index, to which the CLI is benchmarked, later in the year. However, he notes that by July, when that report is likely to be issued, the information about what has happened in the first three months of the year will be irrelevant.

The CLI was launched last Tuesday, January 24,2006 attended by Central Bank Governor Ewart Williams who acknowledged that there is a problem getting  timely and relevant information from the bank and the Central Statistical Office. He welcomed the introduciton of the CLI as being complementary to the information available to analysts and other decision makers, including the Central Bank itself. While praising the work that has been done over the past few years to develop a "fairly good set of basic statistics", Williams says "we need to go beyond our present database. We need to change the culture towards the provision of information. The private sector needs to recognise that there is value in providing data even if it may imply a slight inconvenience."

The CLI will be issued on the first Friday of each month and will be distributed free of charge to clients on CMMB's mailing list and to the media. The next one is scheduled to be released on February 3, 2006 with an outlook for the month of March. CMMB's Rambarran says that one will be "essentially the same" as the one for February, because there have been no major changes to the indicators in the system within the last week. And "its hardly likely that there will be any major change, "Rambarran adds.

CMMB says the Composite Leading Indicator was designed to provide "clear and early readings" of monthly movements in the country's economy and is based on extensive research into Trinidad & Tobago’s business cycle.  The business cycle has been divided into four separate and distinct phases:
• Phase I - Moderate Growth
• Phase II - Oil Boom Expansion
• Phase III - Recession
• Phase IV - Stabilization and Growth

CMMB says its CLI will be fast, providing its predictions after a short time lag. Production of the CLI has been "highly automated" to ensure there is no delay in compiling the information.The company boasts that it will also be first in providing "flash indications" of the direction of the economy. According to the CMMB release, "The CLI has a natural 3-6 months advantage over its reference series, the Quarterly Gross Domestic Product Index (QGDP), and mainly relies on readily available data “independent” of official reporting agencies like the Central Statistical Office and the Central Bank of Trinidad and Tobago."

The CLI will also be comprehensive, providing  coverage of key areas that drive the country's business cycle. CMMB says it will be easy to maintain, comprising 5-10 key component series whose turning points are aligned to the key reference series – the QGDP.

The design and construction of the CMMB CLI has been heavily influenced by the Organisation for Economic Co-operation and Development (OECD), but the brokerage house says the methodology has been extensively modified and adapted to suit local conditions such as:
• Underdeveloped statistical infrastructure and the lack of coverage of key sectors in the economy
• Relatively short time series
• Lack of timeliness of the data
• Absence of strong seasonal patterns in the data process.

So why does Trinidad and Tobago need a CLI? CMMB says its important to have one because in this country, official statistics are seen as “yesterday’s eye on the future” as they suffer from three main weaknesses:
• Not timely and often issued with considerable delay
• Often contain errors and are subject to considerable revisions
• Provide insufficient coverage in some areas of public policy concern

"Leading indicator series, in this regard, are increasingly viewed as useful tools for macroeconomic planning, policy implementation and business decision-making because they give early signals about the possible direction of economic movements, signaling an expansionary or recessionary phase."

Among its advantages are that they:
• Easily summarize complex or multidimensional issues to better support decision-making
• Are easier to interpret than trying to find a trend in many separate indicators.
• Facilitate the task of ranking countries on complex issues in a benchmarking exercises.
• Can assess progress of countries over time on complex issues.
• Reduce the size of a set of indicators or include more information within the existing sizelimit.
• Place issues of country performance and progress at the centre of the policy arena.
• Facilitate communication with the general public (i.e. – citizens, media, etc.) and promote accountability.

However, a CMMB brochure warns that there are also disadvantages. A CLI:
• May send misleading policy messages if it is poorly constructed or misinterpreted.
• May invite simplistic policy conclusions.
• May be misused, e.g., to support a desired policy, if the construction process is not
transparent and lacks sound statistical or conceptual principles.
• The selection of indicators and weights could be a target of political challenge.
• May disguise serious failings in some dimensions and increase the difficulty of identifying proper remedial action.
• May lead to inappropriate policies if dimensions of performance that are difficult to measure are ignored.

endit.

The next CLI release is scheduled for Friday 6 February 2006