The economy is made up of different sectors of the economy. Therefore, can monitor economic development by following industry or sector specific indicators.

Table 4a - Malaysia’s economic structure in the last 30 years. Services and Manufacturing sectors becoming more important while the Agriculture sector becoming less important.

Table 4a : Malaysia’s Economic Structure (% GDP) (click to view)

(1) Industrial production

Malaysia’s industrial production is made up of 3 divisions - table 4b.

Table 4b

Industrial production is a key indicator of economic strength.

Figure 4a - Malaysia’s industrial production growth and real GDP growth move in close steps.

Figure 4a : Malaysia's Real GDP and Industrial Production

(2) Capacity utilization rate

It refers to the ratio of production to capacity. Example - if a bottle factory has the capacity to produce 10,000 bottles a month but only produces 7,000 bottles, then the capacity utilization rate is 70%.

US - the monthly data is followed closely to gauge supply condition and inflationary pressure. The higher the capacity utilization rate, the higher the inflationary pressure.

However, "Optimal" capacity utilization rate changes with time. In the mid-1980s, 80% used to be the threshold. Figure 4b - the relationship breaks down from late 80s onwards due to globalisation and improved technology. Yet it is still an important inflation barometer.

Figure 4b : US Capacity Utilisation and Inflation Rates

(3) Sales value

Sales value is the ex-factory value of products sold.

It is used together with manufacturing production index in industrial production to monitor manufacturing sector’s development.

Figure 4c - Growth rates of sales value and manufacturing production move in close steps.

Figure 4c : Malaysia's Sales Value and Manufacturing Output

Figure 4d - Sales value and major manufactured products exports also move in close steps.

Figure 4d : Malaysia's Sales Value and Major Manufactured Products Exports

Figure 4e - Manufacturing employment.

Figure 4e : Employment in the 73 Major Manufacturing Industries in Malaysia

Figure 4f - Manufacturing sector’s wage pressure has become less steep after the 1997/98 crisis.

Figure 4f : Average Monthly Wages in the 73 Major Manufacturing Industries

(4) ISM’s manufacturing activity index

It is the most widely followed indicator of the manufacturing sector in the US. It is released on the first working day of every month, giving an early indication on the health of the eoconomy.

The Index is derived from questions asked of manufacturing companies’ purchasing managers about conditions of 5 areas Table 4c.

Table 4c

New orders has the largest weighting. The higher the new orders, the higher the index.

A slower supplier delivery indicates higher demand. So, a slower supplier delivery is positive to the ISM's manufacturing activity index.

A high inventory liquidation is positive to the ISM’s manufacturing activity index.

Figure 4g - When the ISM’s manufacturing activity index is above 50, the manufacturing sector is expanding. If it is above 42.9, the economy is expanding. If the index is between 42.9-50, the manufacturing sector is contracting but the economy is expanding.

Figure 4g :US's ISM's Manufacturing Activity Index

(5) US - Non-manufacturing business activity index

It is an indicator of the services sector. The business condition of the services sector is more important because the services sector accounts for about 80% of US GDP.

Figure 4h - Index above 50, services sector expanding, vice-versa.

Figure 4h : ISM's Non-manufacturing Activity Index

(6) US - Housing starts and building permits

The housing industry is important because of its vast connection to the other sectors of economy. Example, when buying a house, one needs banking and lawyer services. One also needs to buy furniture, TV, gardening tools, etc. A healthy housing industry can drive economic growth.

In the US, housing starts measures the commencement of new residential construction activities. Building permits measures the number of permits issued for housing starts. It is a leading indicator of housing starts.

Figure 4i - US housing starts held up well after the high tech bubble went bust in 2000, supporting economic growth.

Figure 4i : US Housing Starts and Building Permits

In Malaysia, monthly building permits data is only available for Peninsular Malaysia. Figure 4j - although economic growth in the last few years has been volatile, residential building activity has remained rather stable.

Figure 4j : Housing Approvals in P. Malaysia

(7) US new and existing home sales

In the US, new and existing home sales are good indicators of the well-being of the housing industry.

A new home is considered sold when the sales contract is signed or deposit accepted.

An existing home is considered sold when the sales contract is closed.

New home sales lead existing home sales by 1-2 months because it takes 30-45 days to obtain and close a mortgage. New home sales present a more accurate reflection of current market sentiment.

Figure 4k - New home sales remained strong after the bubble went bust due to falling interest rates.

Figure 4k : US's New Home Sales

Figure 4l - Existing home sales.

Figure 4l : US's Existing Home Sales