A youth sentiment index as a leading economic indicator

This paper proposes a novel youth sentiment index to be used as an alternative to standard business cycle leading indicators. Inspired by the Purchasing Managers’ Index, our index uses questionnaire data to build an index with values ranging from 0 to 100; with 50 being the cutoff value for future economic contraction. This article argues that in a developing economy context, such an index may not only serve as a cost-effective alternative for traditional leading indicators but also as a tool for youth empowerment in policymaking. This study is conceptual in nature, as the index is theoretically developed and operationalized. Methodologically, the index relies on a 3-point Likert questionnaire administered to a representative sample of youth aged between 15 and 24, encompassing two sets of questions which capture socio-economic features and youths’ sentiment outlook respectively. Its value is then computed using a diffusion formula similar to that of the PMI. The proposed index represents the first PMI-analogue diffusion-style leading indicator that takes the youth as its target population, offering a parallel metric for business-cycle forecasting. From a practical perspective, it could provide policymakers with a cost-effective early-warning tool while also serving as a mechanism for youth inclusion in public policymaking.