European Commission Directorate General Economic and Financial Affairs Harmonisation of BCS: Aggregation methods Roberta Friz Business and consumer surveys and short-term forecast (ECFIN A4.2) EC workshop on recent developments in business and consumers surveys Brussels,15-16 November 2012

2 Introduction Pros and cons of the different methods Conclusions and EC aggregation method choice Some examples on "old" and "new" series Outline

3 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

4 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

5 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

6 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): None Insufficient demand Shortage of labour force Shortage of material (space) and/or equipment Financial constraints Weather conditions Other factors

7 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 equipment Extension of production capacity Investment designed to streamline production Other investment objectives (pollution control, safety, etc.)

8 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)

9 Pros and cons of the different methods

10 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 role Not in line with the original harmonised questionnaire

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

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

13 2A -Institutes send the data without adjusting This interpretation seems correct, it reflects the answers received from the managers

14 2B –Results, incl. "none", are rebased to sum up to 100% Interpretation could be misleading Share of "none" is undervalued

15 2C –Results are rebased to sum up to 100% after having fixed the "none" percentage Interpretation could be misleading More pronounced underestimation of the % of the factors limiting production than in B

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 aggregates Cons: Don't match the aim of the question on factors limiting production Seems to be the most suitable for the investment survey

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.

18 Conclusions

19 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

20 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)!

21 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 AFirm BFirm CTotalDG ECFIN factors Total None 11 1 Insufficient domestic demand 11 2 Insufficient demand 2 (Not 3!) Insufficient foreign demand 1 1

22 Some examples

23 Some examples

24 Some examples

25 Some examples