1. 1 University – Higher School of Economics Institute of Statistical Research and Knowledge Economics Conjuncture Research Centre Practice of business tendency surveys in Russia: methodology aspects and possibilities for early warning of economic activity changes Third International Seminar on Early Warning and Business Cycle Indicators 17-19, November 2010 Conjuncture Research Centre

2. 2 Outline 1. Practice of business tendency surveys in Russia  Methodology  Organization  Developments 2. Relevance for warning of economic activities changes  Application surveys results for economic analysis and short- term forecasting  Focus on recent economic crisis 3. Pilot services survey  Methodology  Results CRC

3. 3 Business climate monitoring in Russia based on business tendency surveys  With a view of expansion of traditional statistical measurements possibilities there is a necessity to use alternative sources of the information on economic development  Business climate surveys which are based on revealing of businessmen opinions about current and future business tendencies, provide a short-term qualitative information  Methodology strategy of the Conjuncture Research Centre (CRC) in the field of organization of business climate monitoring is formation of the Complex Harmonized System of Business Tendency Surveys in various sectors of Russian economy, adapted to the international standards CRC

4. 4 Business climate surveys Sectors Starting year Sample sizes, number of enterprises Groups of enterprises Surveys frequency Industry1995 about 4000, including 600 basic Economic activities Patterns of ownership Organizational and legal forms Regions Monthly Construction1993about 7000 Patterns of ownership Number of employed Regions Quarterly Trade1998 retail – more than 4000 wholesale – about 3000 Size of daily turnover Number of employed Regions Quarterly Financial leasing2002about 900 Economic activities Regions Quarterly Investment2001more than 10000Economic activitiesYearly Services2010more than 4000 Economic activities Regions Yearly CRC

5. 5 Methodology principles of business climate surveys organization  Adequacy for current economic conditions and national economics peculiarities  Comparability with statistical instruments of national economics analysis  Comparability with international analogues, particularly with the information of Harmonized EU Programme  Abilities of receiving short-term reliable data  Representativeness of samples  Stability of constant indicators blocks and actualization of variable blocks  Harmonization and partial unification of the questionnaires for comparability of the sector survey results  Possibilities:  processing and generalization of quality information  organization of monitoring  indication of business cycles and turning points of business climate  integration in macroeconomic analysis and short-term forecasting CRC

6. 6 Potential of the business climate surveys  Strengths:  adequacy for current economic situation  methodology harmonization with Eurostat and OECD  timely of monthly surveys; all surveys information is received before similar statistic data  representative samples  no revisions  long-term database  width of coverage: regions, economic activities, questions  abilities of business cycles indication, integration in macroeconomic analysis and short-term forecasting  Shortcomings:  rather inflexible to changes due to harmonisation and collecting information through state statistical system (Rosstat)  lack of monthly construction and trade surveys CRC

7. 7 Organization of surveys Methodology improvement: questionnaires, sampling methods, methods for processing information and using it in economic practice Sampling design Conducting pilot surveys Adaptation of surveys to the statistical practice, collection and transfer information to CRC ISSEK HSE Information analysis : 1. Processing – aggregation, weighting, seasoning adjustment, identification of periods of contraction, recession, expansion and peaks 2. Calculating of composite confidence and business climate indicators 3. Database support (source and summary) Issue of press releases, other information and analytic papers Data dissemination and publication (national and international) CRCRosstat CRC

8. 8 Business tendency surveys indicators system: structure and principles of building  First block contains a constant set of questions for all surveys, including harmonized questions, recommended OECD and European Commission  Second block contains special questions, regularly replicating during several surveys and concerning stable specific tendencies in Russian economy  Third block contains special questions about phenomena either incipient or inertial in progress CRC

9. 9  Questions about characteristics of surveying organization activity  Questions concerning indicators changes should be exactly connected with time lag of survey (month, quarter, etc.)  For questions concerning changes of indicators answers are usually given according to a 3-option ordinal scale:  increased (improved) (+)  remain unchanged (=)  decreased (deteriorated) (–)  Questions concerning current situation assessment include comparison of the real situation with a “normal” situation (usual for economic conditions and period) in spite of subjectivity of answers:  more than sufficient (+)  sufficient (=)  not sufficient (–)  All information is qualitative excepted some quantitative indicators. Number of employed in all surveys is used as statistical weight of unit CRC

10. 10 Information possibilities of business climate surveys Industry:  branch situation “demand-output”  actual and expected price tendencies  level of fluctuation in stock of raw material and products  investment possibilities and intentions of the industrialists  level and tendency of capacities use  dominants among sources of financing and factors limiting development of production  structure of the debts  employment strategy  tendencies of export abilities and import needs  general economic situation in a sector Construction:  dynamics of orders book  actual and expected modifications of physical volume and cost tendencies of construction works  situation with financial resources and debt receivable  strategy of employment in the construction sector  distribution of the factors limiting building activity on a degree of significance  priority of objects in construction  economic situation in a sector CRC

11. 11 Retail and wholesale trade:  actual and expected modifications of trade turnover, volume of stock of goods and assortment, number of employed  condition of resource and financial basis  distribution of trade organizations on sources of receipt of documentary resources, variants of accounts with the suppliers  factors limiting trade activity and priority directions of its development and extension Investment:  current and expected volume of investments into a fixed capital  main purposes and sources of investments in the current and the next years  factors limiting investment activity  condition, implementation and retirement of capital assets Financial leasing:  level and dynamics of demand for leasing activity, cost and physical volume of concluded contracts  priority sources financing of leasing activity and major restrictive factors  business situation and competitive position of organizations CRC

12. 12 Key areas of analysis of qualitative short-term information - surveys results  Processing of time series of business activity indicators (seasonal adjustment, identification of recessions, expansions and peaks in cyclical component)  Calculation of various coincidence types business climate composite indicators on the base of results of cross-correlation analysis of survey and statistical indicators time series  Calculation of weight coefficients for composite indicators components using principle components method (at a development stage) CRC

13. 13  Approaches to the integration of survey results and statistical quantitative indicators, in particular:  cross-correlation analysis of connection closeness and synchronism of compared indicators cycle profiles (for example, time series of industry surveys indicators and industrial production index)  short-term GDP forecast based on correlate-regression analysis results  Identification of structural-temporal correlation of indexes and groups with uniform quality on the basis of cluster analysis  Approaches to the non-response problem decision, considering character of probability assessment distribution and organization size  Assessment of business information quality and responses coordination  Calculating of Economic Sentiment Indicator summarizing results of real sector, services and consumer surveys CRC

14. 14 Confidence indicators  Industry:  current order books  current stocks of finished products (with inverted sign)  production expectation over next 3 months  Construction:  current order books  expected change of firm’s total employment over next 3 months  Retail and wholesale trade:  present business situation of organization  future business situation of organization  level of stocks (with inverted sign)  Services:  recent evolution of business situation  recent evolution of demand  expected evolution of demand CRC

15. 15 Sample design of business surveys  Requests to sample:  territorial approach of sample (as a whole on Russia)  representation of sample at the level of regions, and in an industry - at level of each leading industry branch  minimal sample size (at the level of regions)  Determination of a necessary sample size:  minimum and allowable for a regional level of development of survey materials (without a further grouping of parameters)  sufficient for deriving an authentic evaluation of a parameter  The minimum and allowable sample size for generalized information about quantitative parameters of business activity of the enterprises at a regional level accepts volume in 60 observation units  Thus, it is applied multivariate stratified sample with random or mechanical selection of observation units in stratum CRC

16. 16 Data dissemination 1. Timetable Economic activitiesReporting to RosstatReporting from Rosstat to CRC Industry10 numbers of current month 14 working day of current month Construction 10 numbers of the 2 nd month of current quarter 20 working day of the 2 nd month of current quarter Wholesale trade 10 numbers of the 3 rd month of current quarter 8 working day after current quarter Retail trade 15 numbers of the 2 nd month of current quarter 6 working day of the 3 rd month of current quarter InvestmentOn October, 20 th current yearOn December, 3 rd current year Financial leasing On February, 10 th current year On March, 12 th current year CRC

17. 17 2. Publications  Press releases are sent to mass-media on the 3 rd – 4 th day after receiving information from Rosstat  Information and analytic materials (including indicators of confidence) and quarterly newsletter “Business Climate in Russia”:  available on the site of HSE: http://www.hse.ru/org/hse/monitoring/del  are submitted to government bodies, mass-media, scientific community, employers' organizations  Revues of business climate tendencies in various economic sectors based on business tendencies surveys data are regularly broadcasted by TV-channel “Russia-24”  Parts in international yearbooks of Federal State Statistic Service:  “Russia and Countries of the World”  “Russia and Countries-Members of the European Union”  “Great Eight” in Figures” CRC

18. 18 Methodological aspects of the analysis and processing of business surveys results  Analysis basis is quantification of the qualitative indicators, including quantitative representation and measuring procedures of the analysis of the qualitative information on a level and short- term tendencies of the business climate indicators  The first stage of quantification: measurement of qualitative characteristics (scaling) — the formalized definition quantified characteristics (level or change of analyzed survey indicators)  The second stage of quantification: the analysis of indicators connections within the limits of each survey — formalization of indicators relations  The purpose: "compression" of survey results, information consolidation to all characteristics in groups coherent as high as possible for simplification of interpretation and analysis; creation of the composite indicators CRC

19. 19 Key areas for second phase of quantification 1. Integration of business tendencies survey results 2. Assessment of quality of surveys data — estimation of answers coordination depending on scaling method and surveys data co-variation 3. Non-response problem solving — counting full and partial “non-response” according to character of probabilities distribution of respondents estimations and an indicator of the enterprises size HorizontalVertical (“indicator approach”)  Calculating of simple indicators of a level or changes of business climate measures – opinion balances, average rates (for example, capacity utilization, competitive position)  Identification of structural and temporal relations – provisional calculating of statistically admissible composite indicators (method of principle components)  Consolidation of organizations in various groups with uniform quality (by cluster analysis methods) CRC

20. 20 The third stage of quantification — the dynamic analysis of survey results for the purpose of their integration into the macroeconomic analysis and the short-term forecast Building of composite indicators of cyclic character in the presence of short time series of quality surveys indicators Building of composite indicators of cyclic character in the presence of sufficient length time series of quality surveys indicators CRC

21. 21 Key areas of information and analytical activity development  Creation of the Complex Harmonized System of short-term indicators of a business climate in various economic sectors, including indicators generalizing character  Creation of the National Harmonized Economic Sentiment indicator generalizing results of real sector, services and consumer surveys  Formation of a uniform policy of distribution of business climate monitoring results taking into account the international standards, information representations in the international organizations (European Commission, OECD, etc.)  Expansion of sectoral coverage and adaptation of the methodology of business tendencies research on regional monitoring level CRC

22. 22 Specific targets :  Regular studying of updated methodological and practical aspects of the European Union business tendencies researches  Adaptation of the European experience of questionnaires design, information collecting and processing to the Russian conditions  Adoption in surveys practice of the updated international standards of information collecting and dissemination  Actualization of business climate surveys programs:  questionnaires unification  harmonization of non-quantitative short-term indicators  comparability of surveys results on various aspects of respondents activity taking into account specificity of regional development of Russian economy  Identification of structural-temporal correlations of business climate indicators, revealing of qualitative-homogeneous groups of economic agents, including on various aspects of their activity CRC

23. 23  Development of program, methodological and technological instruments of business surveys in various sectors of economics, including services and consumers, their adaptation to the international standards (to Eurocommission and OECD recommendations)  Preparation of all necessary methodical, practical materials and conducting of pilot regional surveys for the organization of regular business tendencies surveys in various sectors, including services and consumers for use of their results in a complex estimation of a business climate of Russia  Adoption of the updating methods of a generalizing estimation of business tendencies by means of composite business climate indicators, including the European Harmonized Economic Sentiment Indicator with separation of seasonal and cyclic components  Identification of leading cyclic components and composite indicators for expansion of possibilities for early warning of economic activities changes CRC

24. 24 Relevance business climate surveys results for economic analysis and short-term forecasting CRC

25. 25 Indication of economic activity changes over a period of crisis 1998 (Industry) CRC

26. 26 Indication of economic activity changes over a period of crisis 2008 – 2009 (Industry) CRC

27. 27 Industry and Gross Domestic Product (quarterly information) 2 nd quarter 2008 maximum GDP, IIP, ICI 1 st quarter 2009 minimum IIP and ICI 2 nd quarter 2009 minimum GDP High correlation of quarter GDP and Index of industrial production (0.94) Good correlation of time references and Industrial confidence indicator (0.86) with leading for 1 quarter relatively GDP CRC

28. 28 Retail trade Crisis 2008 - 2009: decline of confidence indicator – 2 nd quarter 08 decline of turnover – 3 rd quarter 08 increase of confidence indicator – 1 st quarter 09 increase of turnover – 3 rd quarter 09 Crisis 1998: decline of confidence indicator – 1 st quarter decline of turnover – 3 rd quarter increase of confidence indicator – 3 rd quarter increase of turnover – 1 st quarter 99 Quarterly Retail trade confidence indicators and Retail turnover time series demonstrate acceptable correlation (0.78) and average leading 1 -2 quarters CRC

29. 29 Construction 1 st quarter 2008 maximum 2 nd quarter 2009 minimum Construction confidence indicator and Construction value added are changed synchronously CRC

30. 30 Investment expectations in comparison with previous year Balances, % CRC

31. 31 Services business tendencies surveys  Premises and actuality  strengthening of the role of businessmen opinions at the formation of a favorable business environment  activization of requirements of various categories of users, including the international organizations, in estimations of short-term tendencies of all of economic sectors development  essential and constantly increasing contribution of services to Russian economy (more than third of gross value added)  necessity of creation of the integrated Economic Sentiment Indicator, generalizing estimations of short-term development of real sector, sectors of services and consumers for the purpose of early indication of possible changes of GDP  General purpose – expansion of monitoring of business tendencies for the formation of the Complex Harmonized System of short-term indicators of a business climate in Russia  Current purpose – approbation of the unified program of services business climate survey and its further introduction in statistical and economic practice  Specificity of services surveys  necessity of unification: activity indicators, samples, methods of processing and the analysis for service organizations, essentially differ according to specific features of each type of services, their results, technologies, sizes, consumers  absence in Russia of experience in services business tendencies surveys CRC

32. 32 Pilot services surveys  For harmonization of services surveys and achievement of comparability of their results the following complex of works has been spent:  the list of the economic activities covered by survey is defined  criteria of a choice of sampling observation methods and observation units selection methods are defined  the unified system of business climate monitoring indicators in the services, harmonized with the surveys spent by CRC ISSEK HSE and the international analogues, is developed  coordination of methodological and technological works on the pilot survey organization by regional statistical divisions is provided  Survey was spent by the Information and publishing center «Statistics of Russia» under the order and methodology of CRC ISSEK HSE in August, 2010  Survey format  self-filling of the questionnaire or carrying out of personal interview with heads of the organizations  not less than 10% the selective control of a survey conducting  visual and logic control of the source information CRC

33. 33 Pilot services surveys – coverage of economic activities Economic activitiesSectionsSubsectionsNumber of units Total4230 Hotels and restaurantsH55237 Land transportI60170 Travel agencies and tour operatorsI63.3505 Financial intermediationJ65, 66, 67348 Real estate activitiesK70597 Computer and related activities К72490 Research and development К73265 Other business activities К74125 Education M80375 Health and social work N85468 Recreational, cultural and sporting activities О92350 Other services activities O93300 CRC

34. 34 Pilot services surveys – sample design  Sample size – 4230 observation units  Organizations realizing commercial activity only  Organization size were no limited (for reason of there being a lot of small-scale enterprises in services)  Sample:  zoned on 8 federal districts  multivariate  stratified  representative at every level  probabilistic method observation units selection in everyone stratum  sample basis – an information file of the Uniform state register of the enterprises and the organizations conducted by Rosstat CRC

35. 35 Pilot services surveys – indicators system  Unified questionnaire for all organizations  Basic indicators (level, tendencies and expectations) include harmonized indicators recommended by Eurostat and OECD and used for confidence indicators calculating  Special questions blocks about specific activities in questionnaires for:  Travel agencies  IT-sector organizations  Education institutions  Health organizations  Major factors negatively influencing organizations activity CRC

36. 36  All information is qualitative  A 3-option ordinal scale is used for the estimation of indicators of changes:  increased (improved) (+)  remain unchanged (=)  decreased (deteriorated) (–)  For estimation of current condition, the actual situation is compared with a “normal” (usual) level:  more than sufficient (+)  sufficient (=)  not sufficient (–)  Services confidence indicator is calculated in main kinds of economic activities as the arithmetic average of the balances of answers to the questions:  recent evolution of business situation  recent evolution of demand  expected evolution of demand CRC

37. 37 Services confidence indicators in January - June, 2010 CRC

38. 38 Factors negatively influencing services activity Share of the organizations from their total number, % CRC