Westpac and the Melbourne Institute describe their Leading Index as a composite measure which attempts to estimate the likely pace of economic activity relative to trend in Australia. The index combines certain economic variables which are thought to lead changes in economic growth into a single variable. This variable is claimed to be a reliable cyclical indicator for the Australian economy and an indicator of swings in Australia’s overall economic activity.
The six-month annualised growth rate of the indicator partially rebounded and increased from -0.02% in August to 0.20% in September. These figures represent growth rates relative to trend-GDP growth, which is generally thought to be around 2.75% per annum for Australia. The Index is said to lead GDP by 3 months to 6 months, so theoretically the current reading represents an annualised GDP growth rate of just under 3.00% in the December or March quarters.
The largest positive effects over the previous six months have come from higher Australian equity prices and a steeper yield curve. The largest negative influence was in the form of lower dwelling approval figures.