BT: Taking the pulse of a nation

Business Times - 26 Nov 2007

Taking the pulse of a nation

CHEN HUIFEN highlights some key economic data and explains what they reveal about a country's commercial performance

IN PREVIOUS instalments of this section, we looked at how companies' annual reports and financial ratios can help give an idea of the value of individual firms.

Those are very specific, and sometimes narrow, assessments of the well-being of a particular model. Very often, research into individual firms has to be undertaken with a larger perspective of what is happening in the industry or in the economy.

In Singapore, various government agencies are in charge of publishing different economic data. Some such historical data is published monthly, and some, quarterly. You can either access this information through the websites of the respective government agencies or, like many readers, count on financial newspapers like The Business Times to sieve through the information for you.
But with so much information overload, which are the key data to watch out for? We list below the first of two sets of major economic indicators that could have a bearing on the commercial health of a nation. The second set will be discussed and explained next week.

Gross Domestic Product

The GDP measures the aggregate sum of goods and services produced by a country, expressed in terms of their market value. It is usually stated in percentage terms to indicate how much the economy has grown from the previous year.

In Singapore, this data is released by the Ministry of Trade and Industry (www.mti.gov.sg) on a quarterly basis. The quarterly flash estimate - based on data in the first two months of the quarter - is usually available within two weeks from the end of the quarter. The actual growth figure comes out roughly two months later.

Observers tend to look at the real GDP figure, as this has been adjusted for inflation. For fast-growing emerging markets like China, India and Vietnam, GDP growth of 7-10 per cent is not unusual. But beyond a certain point, analysts would question if the economy is overheating.
This means that the demand for its goods and services is far more than what it can do to supply them. This could lead to higher prices, which in turn could cause reduced consumption and investment.

On the other hand, negative GDP growth for two or more continuous quarters would also raise alarm bells as the trend is indicative of a recession.

Consumer Price Index

Closely monitored with the GDP, the CPI measures inflation. In Singapore, the monthly data is released by the Department of Statistics (www.singstat.gov.sg), usually within three weeks of the following month.

It tracks the change in prices in a fixed basket of goods and services commonly purchased by the majority of households here.

Conventionally tracked in year-on-year terms, Singapore's inflation rate has been maintained at around 0-2 per cent in the last 10 years (with the exception of 1998 and 2002, when falling prices were actually recorded).

However, that figure is expected to hit as high as 5 per cent in the first half of next year, driven by record oil prices, rising food, transport, and housing costs, as well as adjustments for the 2 per cent hike in GST since July this year.

Generally speaking, high inflation rates disincentivises savings and may induce people to take up riskier investments with the goal of reaping returns that will beat the inflation rate.

High inflation may also make a country's exports more expensive, and prompt a country's monetary authorities to adjust its currency exchange rate, as a way to manage the demand for its exports.

Manufacturing output

With the manufacturing sector accounting for a quarter of Singapore's GDP, the sector's health is thus an important economic indicator.

Also referred to as industrial production, Singapore's manufacturing output data is released by the Economic Development Board (www.sedb.gov.sg) every month. It gives the raw value of goods produced by factories and plants in Singapore and is often expressed in terms of percentage growth.

Within this report, the output is further segmented into their respective industries. Analysts will be able to tell which are the ones that are suffering and which ones are driving the growth. The big three sub-groups of the manufacturing sector are electronics, biomedical sciences and the chemicals.

In Singapore, the biomedical sciences manufacturing industry is very volatile. It can swing the total manufacturing output into very high growth or drag the sector down with a double-digit contraction.

External trade figures

Data on non-oil domestic exports (NODX) is delivered monthly by International Enterprise Singapore (www.iesingapore.gov.sg), formerly known as the Trade Development Board.
The NODX tracks the shipment value of made-in-Singapore products to overseas markets. Oil exports are left out because Singapore does not produce oil on its own, but is a major transhipment centre for oil products.

Usually expressed in percentage growth terms, the NODX gives an idea of where the demand for Singapore goods is coming from, the types of goods that are popular and those losing their demand during a period.

Jobs data

The Ministry of Manpower (www.mom.gov.sg) looks after the jobs data in Singapore, including employment, jobless figures and the retrenchment rate. They provide a barometer of the labour situation.

When the market approaches full employment, it means that the job market is good, and bosses may have to offer higher wages to prevent their workers from hopping to competitors.

More people being employed also means a greater number of consumers who would be able to buy goods and services. And if wages are also rising in tandem, workers would have higher disposable incomes to fuel demand for consumption goods.

Conversely, a rising jobless rate could also reflect a weakening economy, especially if the retrenchment rate is high and the number of jobs created is low.