European CommissionDirectorate General Economic and Financial Affairs

Harmonisation of BCS: Aggregation methods

Roberta FrizBusiness and consumer surveys and

short-term forecast (ECFIN A4.2)

EC workshop on recent developments in business and consumers surveysBrussels,15-16 November 2012

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• Introduction

• Pros and cons of the different methods

• Conclusions and EC aggregation method choice

• Some examples on "old" and "new" series

Outline

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Introduction

• Survey among partner institutes carried out in 2010 highlighted possible harmonisation problems in aggregation methods used

• In 2011 a Task Force was created with the aim to make recommendations on the best aggregation method of the replies at country level in order (1) to calculate meaningful EU and euro area results that will be easy to interpret and (2) to allow comparison between countries

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Introduction (2)

Members of the Task Force: BNB (Belgium),

INSEE (France), IOBE (Greece), NIS (Romania),

Statistical Institute of Poland, WIFO (Austria),

NIER and SCB (Sweden), and CBS (UK)

Give contributions on pros and cons of each

aggregation method

Recalculate back series in order to check the

impact of a different aggregation method

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Questions concerned by the aggregation methods:

Quarterly questions on factors limiting production in

the industry, services and construction surveys

Question on the structure of investment in the

Oct/Nov Investment survey

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Quarterly question on factors limiting production

What main factors are currently limiting your production (business in the service survey, building activity in the construction survey):NoneInsufficient demandShortage of labour forceShortage of material (space) and/or equipmentFinancial constraints Weather conditionsOther factors

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Question on the structure of investment in the Oct/Nov Investment survey

Investment carried out this year and planned investment for next year is, or will be, of the following kind (choose appropriate category or categories):

Replacement of worn-out plant or equipmentExtension of production capacityInvestment designed to streamline productionOther investment objectives (pollution control, safety, etc.)

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Aim of the questions

Objective of the quarterly questions:

to know which are the factors limiting production

and which percentage of firms have any given

problem

Objective of the investment survey:

to have an idea of the shares of investment by

categories (i.e. structure of investment)

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Pros and cons of the different methods

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1- Possibility to tick only one factor

Pros:Simple and unambiguous

Straightforward EU and euro-area aggregates

Cons:Loss of information on other factors that may also play a roleNot in line with the original harmonised questionnaire

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2 - Possibility to tick more than one factor and each "tick" counts as 1

Three possible ways to send the data:

A - Institutes send the data without adjusting: i.e.

the factor add up to more than 100%

B - Institutes send the results rescaling the factors –

including the "none" - in order to sum to 100

C - Institutes send the results rescaling the factors –

excluding the "none" - in order to sum to 100

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2 - Possibility to tick more than one factor and each "tick" counts as 1

Generally, this method gives a more granular

view of which limiting factors are playing a role

each month

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2A - Institutes send the data without adjusting

This interpretation seems correct, it reflects the

answers received from the managers

SUM 1+2weight: weight:

100 100 100 300 100 100 100 300 600Factor: Firm A Firm B Firm C Tot Firm A Firm B Firm C TotNone 0 1 0 33% 0 1 0 33% 33%Demand 1 0 1 67% 1 0 0 33% 50%Labour force 1 0 0 33% 0 0 1 33% 33%Material 1 0 0 33% 0 0 0 0% 17%Financial 1 0 1 67% 0 0 1 33% 50%Sum 4 1 2 233% 1 1 2 133% 183%

Country 1: Country 2:

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2B – Results, incl. "none", are rebased to sum up to 100%

Interpretation could be misleading

Share of "none" is undervalued

SUM 1+2weight: REBASED weight: REBASED REBASED

100 100 100 300 100 100 100 300 600Factor: Firm A Firm B Firm C Tot Firm A Firm B Firm C TotNone 0 1 0 14% 0 1 0 25% 20%Demand 1 0 1 29% 1 0 0 25% 27%Labour force 1 0 0 14% 0 0 1 25% 20%Material 1 0 0 14% 0 0 0 0% 7%Financial 1 0 1 29% 0 0 1 25% 27%Sum 4 1 2 100% 1 1 2 100% 100%

Country 1: Country 2:

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2C – Results are rebased to sum up to 100% after having fixed the "none" percentage

Interpretation could be misleadingMore pronounced underestimation of the % of the factors limiting production than in B

SUM 1+2

weight:REBASED with "fix"

noneweight:

REBASED with "fix"

none

Other method

100 100 100 300 100 100 100 300 600Factor: Firm A Firm B Firm C Tot Firm A Firm B Firm C TotNone 0 1 0 33% 0 1 0 33% 33%Demand 1 0 1 22% 1 0 0 22% 22%Labour force 1 0 0 22% 0 0 1 22% 17%Material 1 0 0 0% 0 0 0 0% 6%Financial 1 0 1 22% 0 0 1 22% 22%Sum 4 1 2 100% 1 1 2 100% 100%

Country 1: Country 2:

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3 - Possibility to tick more than one factor and each "tick" is divided by the number of "ticks" that firm gave ("fractional")

Pros: Straightforward EU and euro-area aggregatesCons: Don't match the aim of the question on factors limiting productionSeems to be the most suitable for the investment survey

SUM 1+2weight: Fractional weight: Fractional Fractional

100 100 100 300 100 100 100 300 600Factor: Firm A Firm B Firm C Tot Firm A Firm B Firm C TotNone 0 1 0 33% 0 1 0 33% 33%Demand 0.25 0 0.5 25% 1 0 0 33% 29%Labour force 0.25 0 0 8% 0 0 0.5 17% 13%Material 0.25 0 0 8% 0 0 0 0% 4%Financial 0.25 0 0.5 25% 0 0 0.5 17% 21%Sum 1 1 1 100% 1 1 1 100% 100%

Country 1: Country 2:

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4 - Other method: the sum of the enterprises which stated one factor divided by the total enterprises that declared any limitative factor

Main problem: to find a way to aggregate the results at EU and euro-area level without creating distortions and/or loosing information.

SUM 1+2

weight:Other

methodweight:

Other method

Other method

100 100 100 300 100 100 100 300 600Factor: Firm A Firm B Firm C Tot Firm A Firm B Firm C TotNone 0 1 0 33% 0 1 0 33% 33%Demand 1 0 1 100% 1 0 0 50% 75%Labour force 1 0 0 50% 0 0 1 50% 50%Material 1 0 0 50% 0 0 0 0% 25%Financial 1 0 1 100% 0 0 1 50% 75%Sum 4 1 2 333% 1 1 2 183% 258%

Country 1: Country 2:

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Conclusions

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Conclusions For quarterly questions on factors limiting

production/business/building activity: method 2A, namely the institutes send the results without adjusting: i.e. the factors can add up to more than 100%. o Institutes that allow for only one factor: not serious

aggregation issue but should reconsider their approach for harmonisation purposes

For the investment survey in the manufacturing sector: the 3, namely managers can tick more than one category and each "tick" is divided by the number of "ticks" that firm gave. o Institutes asking directly for the percentages are

in line with that method

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Conclusions

Institutes are asked to send the results aggregated with method 2A for the quarterly question from January 2013! and with method 3 for the Oct/Nov investment survey from next year.

We would ask to recalculate the back series as far as possible and at least from 2000 for the total and sub-sector level. Back data from May 2010 should be available before the next publication (end-January 2013)!

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NB: in case the institute allows for more factors than foreseen in the harmonised questionnaire, the institute has to pay attention not to count twice the answers of the sub-categories when aggregating them for DG ECFIN

National Institute factors

Firm A Firm B Firm C Total DG ECFIN factors

Total

None     1 1 None 1

Insufficient domestic demand

1 1   2

Insufficient demand

2

(Not 3!)Insufficient foreign demand

1     1

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Some examples

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Some examples

0

20

40

60

80

100

Jan-90

Dec-90

Nov-91

Oct-92

Sep-93

Aug-94

Jul-95

Jun-96

May-97

Apr-98

Mar-99

Feb-00

Jan-01

Dec-01

Nov-02

Oct-03

Sep-04

Aug-05

Jul-06

Jun-07

May-08

Apr-09

Mar-10

Feb-11

Jan-12

UK - Industry surveyInsufficient demand

newold

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Some examples

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Some examples