The Leading Indicator of Industry Profitability (LIIP) consists of a collection of indexes built to identify turning points and trends in profits at the industrial level in Canada. They are calculated for the entire economy, as well as for 49 industries, based on data available at the end of the previous month.
Produced on a monthly basis, the LIIP is accompanied by a detailed analysis of the indicators’ performance and underlying economic trends. Customers can also plot multiple indicators on a chart using the online interactive tool. The monthly LIIP reports are available on e-Library, either through a subscription or individual purchase.
Interested in the LIIP data? You can find it on e-Data
These indicators were developed based on a thorough investigation of available high-frequency data correlated with future movements in profitability. The series showing the highest correlations with industry profitability six months later were selected to construct each industrial index. Each industry is treated individually and has its own set of underlying drivers.
The value of each leading indicator of industry profitability is obtained by summing the component variables’ normalized month-to-month changes. The normalization is done using standard deviations of the variables’ history. This normalization gives more weight to a change in a stable variable and less to a change in a volatile series.
The national index is treated individually as well. It has its own equation with its own set of variables and is not dependent on the values of individual industries’ indicators.
How to Interpret the Indicators?
The relationship between the indicators and future movements in corporate profitability is not one-for-one. Since the indicators can be volatile on a month-to-month basis, the duration and magnitude of consecutive monthly changes are significantly more indicative than monthly changes. For example, several months of large gains in the indicator would suggest that corporate profits would be expected to experience above-average growth over the next six months.