The Conference Board Korea Business Cycle Indicators SM KOREA LEADING ECONOMIC INDICATORS AND RELATED COMPOSITE INDEXES FOR JULY 2005

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1 Brussels Copenhagen Frankfurt Hong Kong London Mexico City New Delhi Ottawa New York Chicago San Francisco Washington FOR RELEASE: 9:00 P.M. ET, TUESDAY, SEPTEMBER 13, 2005 The Conference Board Korea Business Cycle Indicators SM KOREA LEADING ECONOMIC INDICATORS AND RELATED COMPOSITE INDEXES FOR JULY 2005 This release of The Conference Board s Korea Leading Economic Indicators incorporates benchmark revisions to the composite indexes. The benchmark revisions bring the history of the composite indexes up-to-date with data revisions in their existing components and update the standardization factors used in their calculation. This is a maintenance procedure typically done once a year, which usually does not change the cyclical properties of the indexes and has, as expected, very small effects. Also, beginning with this release, the composition of the coincident index is revised. The unemployment rate (UR) is removed and real gross cash earnings (seasonally adjusted, deflated by consumer price index) is used as a component of the coincident index instead. This is because UR tends to lead at peaks and lag at troughs rather than have a really coincident cyclical timing. Earnings is a better coincident indicator. The components of the leading index are also revised. Monthly working hours is removed and the authorized building permits component is replaced with real construction orders from the private sector. These revisions reduce excessive volatility and improve the cyclical timing of the leading index. These changes are made possible because of new research at The Conference Board (TCB). The Conference Board monitors the behavior and performance of the composite indexes and their components and periodically makes changes to keep the indexes timely and accurate. The revision in the composite indexes is consistent with long-standing TCB policy to make changes to the indexes when research indicates that substantial improvements are possible. For more information on these revisions, visit our web site at The Conference Board announced today that both the leading and the coincident indexes for Korea increased 0.1 percent in July. Based on the benchmarked figures announced today, the leading index increased slightly in July, following two consecutive increases. The leading index has been growing at a percent annual rate in recent months. In addition, since the second quarter of 2005 the strength among the leading indicators has been widespread. This is an improvement from small declines in mid-2004, but it is still below the percent growth through the first quarter of The coincident index, a measure of current economic activity, also increased slightly in July. The coincident index has been on a steady and moderately rising trend since mid Real GDP growth picked up to a 5.0 percent annual rate in the second quarter of 2005, up from the 1.6 percent annual rate in the first quarter and the 3.6 percent average growth over the previous four quarters. The growth in the leading index in recent months suggests that this moderate economic growth should continue in the near term.

2 -2- LEADING INDICATORS. Five of the seven components that make up the leading index increased in July. The positive contributors - from the largest positive contributor to the smallest were stock prices, real exports FOB, the (inverted) index of inventories to shipment, private construction orders, and value of machinery orders. Letter of credit arrivals and the (inverted) yield of government public bonds declined in July. With the 0.1 percent increase in July, the leading index now stands at (1990=100). Based on revised data, this index increased 0.6 percent in June and increased 0.7 percent in May. During the six-month span through July, the leading index increased 1.2 percent, with two of the seven components advancing (diffusion index, six-month span equals 33.3 percent). COINCIDENT INDICATORS. Two of the four components that make up the coincident index increased in June. The positive contributors - from the larger positive contributor to the smaller were industrial production and monthly cash earnings. The wholesale and retail sales component declined, and total employment was unchanged in July. With the increase of 0.1 percent in July, the coincident index now stands at (1990=100). Based on revised data, this index increased 0.5 percent in June and increased 0.4 percent in May. During the six-month span through July, the coincident index increased 2.2 percent, with all four components advancing (diffusion index, six-month span equals percent). The next release is scheduled for October 11, 2005 at 9:00 P.M (ET) In Korea October 12, 2005 at 10:00 A.M. (KOR) FOR TABLES AND CHARTS, SEE BELOW DATA AVAILABILITY. The data series used to compute the two composite indexes reported in this release are those available as of 10 A.M. (ET) on September 12, * The series in the coincident index based on The Conference Board s estimates is monthly cash earnings. There is no forecasted series in the leading index. Professional Contacts at The Conference Board: Media Contacts: Indicator Program: Randy Poe: Frank Tortorici: Website: THE CYCLICAL INDICATOR APPROACH. The composite indexes are the key elements in an analytic system designed to signal peaks and troughs in the business cycle. The leading and coincident indexes are essentially composite averages of between four and eight individual leading or coincident indicators. (See page 6 for details.) They are constructed to summarize and reveal common turning point patterns in economic data in a clearer and more convincing manner than any individual component primarily because they smooth out some of the volatility of individual components. Historically, the cyclical turning points in the leading index have occurred before those in aggregate economic activity, while the cyclical turning points in the coincident index have occurred at about the same time as those in aggregate economic activity.

3 -3- Korea Composite Indexes: Components and Standardization Factors Leading Index Factor 1. Stock Prices Value of Machinery Orders Letter of Credit Arrivals Index of Shipments to Inventories Export FOB Yield of Government Public Bonds Private Construction Orders Coincident Index 1. Industrial Production Wholesale and Retail Trade Employment Monthly Cash Earnings Notes: The component factors are inversely related to the standard deviation of the month-to-month changes in each component. They are used to equalize the volatility of the contribution from each component and are normalized to sum to 1. These factors were last revised effective with the September 13, 2005 release, and all historical values for the two composite indexes were revised at that time to reflect the changes. (Under normal circumstances, updates to the leading and coincident indexes only incorporate revisions to data over the past six months.) The factors above for the leading index were calculated using as the sample period for measuring volatility. A separate set of factors for the , , , and periods, are available upon request. The factors above for the coincident index were calculated using and as the sample periods. These multiple sample periods are the result of different starting dates for the component data. When one or more components is missing, the other factors are adjusted proportionately to ensure that the total continues to sum to 1. For additional information on the standardization factors and the index methodology visit our Web site: To address the problem of lags in available data, those leading and coincident indicators that are not available at the time of publication are estimated using statistical imputation. An autoregressive model is used to estimate each component. The resulting indexes are constructed using real and estimated data, and will be revised as the data unavailable at the time of publication become available. Such revisions are part of the monthly data revisions, now a regular part of the U.S. Business Cycle Indicators program. The main advantage of this procedure is to utilize in the leading index the data such as bond yields and stock prices that are available sooner than other data on real aspects of the economy such as monthly hours worked. Empirical research by The Conference Board suggests there are real gains in adopting this procedure to make all the indicator series as up-to-date as possible.

4 NOTICES The 2005 schedule for the Korea Leading Economic Indicators press release is: August 2005 Data... Tuesday, October 11, 2005 September 2005 Data... Thursday, November 10, 2005 October 2005 Data... Tuesday, December 13, 2005 October release will be at 9:00 P.M. ET and 10:00 A.M. GMT (following Day) November and December releases will be at 8:00 P.M. ET and 10:00 A.M. GMT (following Day) ABOUT THE CONFERENCE BOARD. Founded in 1916, The Conference Board is the premier business membership and research network. The Conference Board has become a global leader in helping executives build strong professional relationships, expand their business knowledge and find solutions to a wide range of business challenges. The Board s Economics Program, under the direction of Chief Economist Gail Fosler, is a recognized source of forecasts, economic analysis and objective indicators such as the Leading Economic Indicators and the Consumer Confidence Index. This role is part of a long tradition of research and education that stretches back to the compilation of the first continuous measure of the cost of living in the United States in In 1995, The Conference Board assumed responsibility for computing the composite indexes from the U.S. Department of Commerce. The Conference Board now produces business cycle indexes for the U.S., Australia, France, Germany, Korea, Japan, Mexico, Spain and the U.K. To subscribe to any of these indexes, please contact Customer Services at , or indicators@conferenceboard.org. AVAILABLE FROM THE CONFERENCE BOARD Korea Business Cycle Indicators Internet Subscription $ 535 per year (1 user) (Includes monthly release, data, charts and commentary) Individual Data Series $ 25 per series downloaded Monthly BCI Report $ 235 per year (Sample available on request) BCI Handbook (published 2001) $ 20 Corporate Site License $2,600 per year Business Cycle Indicators for Australia, France, Germany, Japan, Korea, Mexico, Spain and the U.K. are available at $535 per country per year (1 user). Discounts are available to Associates of The Conference Board and accredited academic institutions.

5 THIS DATA IS FOR NEWS ANALYSIS PURPOSES ONLY; NOT FOR REDISTRIBUTION OR PUBLIC POSTING WITHOUT EXPRESS PERMISSION. The Conference Board Korea Business Cycle Indicators Table 1.--Summary of Korea Composites Indexes 2005 Jan. Feb. Mar. Apr. May Jun. Jul. Leading index Percent change Diffusion index Coincident index p Percent change p Diffusion index Jul to Aug to Sep to Oct to Nov to Dec to Jan to Jan. Feb. Mar. Apr. May Jun. Jul. Leading index Percent change Diffusion index Coincident index Percent change p Diffusion index p Preliminary. r Revised (noted only for index levels and one-month percent changes). CALCULATION NOTE: The diffusion indexes measure the proportion of the components that are rising. Components that rise more than 0.05 percent are given a value of 1.0, components that change less than 0.05 percent are given a value of 0.5, and components that fall more than 0.05 percent are given a value of 0.0. For more information, visit our Web site at Source: The Conference Board All Rights Reserved

6 THIS DATA IS FOR NEWS ANALYSIS PURPOSES ONLY; NOT FOR REDISTRIBUTION OR PUBLIC POSTING WITHOUT EXPRESS PERMISSION. The Conference Board Korea Business Cycle Indicators Table 2.--Data and Net Contributions for Components of the S. Korea Leading Index 2005 Components Jan. Feb. Mar. Apr. May Jun. Jul. Korea Leading Index Component Data Stock Price Index, (Jan. 4, 1980=100) Value of Machinery Orders, Mfg. (Bill Won, SA,) r r r r r r Letter of Credit Arrivals, Mfg. (3 Month Moving avg., Mill US$, SA,) r r r r r r Index of Inventories to Shipments, Mfg.,* (2000=100, S.A.) r r r r r r Real Exports FOB, Customs Clearance Basis, (3 Month Moving avg., US $ Million, SA) r r r r r r Yield of Government Public Bonds,* Maturity up to 5 Years, (Percent) Private Construction Orders (Bill. Of Won deflated by PPI, 3MA, SA) r r r r r r LEADING INDEX (1990=100) Percent change from preceding month Korea Leading Index Component Contributions Stock Price Index, (Jan. 4, 1980=100) Value of Machinery Orders, Mfg. (Bill Won, SA,) Letter of Credit Arrivals, Mfg. (3 Month Moving avg., Mill US$, SA,) Index of Inventories to Shipments, Mfg.,* (2000=100, S.A.) Real Exports FOB, Customs Clearance Basis, (3 Month Moving avg., US $ Million, SA) Yield of Government Public Bonds,* Maturity up to 5 Years, (Percent) Private Construction Orders (Bill. Of Won deflated by PPI, 3MA, SA) p Preliminary. r Revised. * Inverted series; a negative change in this component makes a positive contribution to the index. ** Statistical Imputation (See page 2 for more details) Q Quarterly series; these series are converted to a monthly series through a linear interpolation. Data Sources: Korea National Statistics Office, The Bank of Korea, Korean Customs Administration, Thomson Financial CALCULATION NOTE--The percent change in the index does not always equal the sum of the net contributions of the individual components (because of rounding effects and base value differences).

7 THIS DATA IS FOR NEWS ANALYSIS PURPOSES ONLY; NOT FOR REDISTRIBUTION OR PUBLIC POSTING WITHOUT EXPRESS PERMISSION. The Conference Board Korea Business Cycle Indicators Table 3.--Data and Net Contributions for Korea Coincident Index 2005 Components Jan. Feb. Mar. Apr. May Jun. Jul. Korea Coincident Index Component Data Industrial Production, (2000=100, SA) r r r r Wholesale and Retail Sales, (2000=100, SA) r r r r r Total Employment, (Thousands of Persons, SA) r r r r r r Monthly Cash Earnings (Hundres of Won, deflated by CPI, SA) ** COINCIDENT INDEX (1990=100) p Percent change from preceding month p Korea Coincident Index Component Contributions Industrial Production, (2000=100, SA) Wholesale and Retail Sales, (2000=100, SA) Total Employment, (Thousands of Persons, SA) Monthly Cash Earnings (Hundres of Won, deflated by CPI, SA) ** p Preliminary. r Revised. n.a. Not available. c Corrected. ** Statistical Imputation (See page 2 for more details) Q Quarterly series; these series are converted to monthly through a linear interpolation. Data Sources: Korea National Statistics Office, Thomson Financial, Ministry of Labor CALCULATION NOTE--The percent change in the index does not always equal the sum of the net contributions of the individual components (because of rounding effects and base value differences).

8 THIS DATA IS FOR NEWS ANALYSIS PURPOSES ONLY; NOT FOR REDISTRIBUTION OR PUBLIC POSTING WITHOUT EXPRESS PERMISSION Leading Index Korea 8/97 7/ Index (1990 = 100) Jul Coincident Index LEAD LEAD_OLD Index (1990 = 100) Jul COIN COIN_OLD Note: The shaded areas represent business cycle recessions. The peaks and troughs are designated by The Conference Board based on the coincident index and real GDP. Source: The Conference Board