Backcasting the future Gary Brown Office for National Statistics, UK

Overview Reclassification Estimation Backcasting Results

Context ONS is changing standard industrial classification from a 2003 version (NACE rev. 1.1) to a 2007 version (NACE rev. 2) User needs vary – estimates required on both SIC03 and SIC07 bases both prior to and post 2010 survey design change Both backcasting and forecasting needed

Estimation Prior to 2010, SIC07 series can only be derived from existing SIC03 Two estimation methods used in ONS – Conversion matrix estimates based on weight w ij from dual coding businesses to SIC03 i and SIC07 j – Domain estimates from calibrating businesses sampled on SIC03 strata to SIC07 register totals Domain estimates more accurate than conversion, and closer to post-2010 vintage

Discontinuity Potential discontinuity from Dec 08 to Jan 09

Discontinuity Potential discontinuity from Dec 08 to Jan 09 Jan09Dec09 conversion domain

Discontinuity Potential discontinuity from Dec 08 to Jan 09 –Many discontinuities due to reclassification of large businesses in January update of ONS business register – these changes were backcast –Some discontinuities due to errors – domain estimates rely on robustness of dual coding Remaining discontinuities need backcasting

Backcasting methods Moving averages method (MA) –Factor for backseries first of following rules to hold: (1) constant MA (2) modal MA (3) model MA closest to link period (4) average MA Level Shift (LS) method uses time series analysis to test for and estimate level shift from moving from conversion series in Dec08 to domain series in Jan09 –Factor for backseries is LS adjustment

Results The results all come from the Monthly Business Survey – 6 month overlap period, so 3x1 MA used Discontinuities were assessed for four different questions (Turnover, Export Turnover, New Orders, Export New Orders) and from 12 to 69 SIC07 codes for each Industries are illustrated for two questions

Results – Turnover of Motor Vehicles

MA link –(1.007,1.007,1.008,1.009): rule (2) chooses –(1.01,1.01,1.01,1.01): rule (1) chooses 1.01 LS link –LS at January 2009 not significant –LS adjustment would be Comment –LS confounds recession with estimation change

Results – Export New Orders in Textiles

MA link –(1.060,1.062,1.083,1.095): rule (4) chooses –(1.06,1.06,1.08,1.10): rule (2) chooses 1.06 LS link –LS at January 2009 not significant –LS adjustment would be Comment –MA spuriously accurate at 3 dp, but better than LS

Conclusions and future The results show –MA method more robust: but care needed with the degree of accuracy used in calculating the links (rule (4) chosen 13% at 2dp and 70% at 3dp) –LS method suffers from throwing away all the conversion estimates during overlap For the future –SIC03 forecast by reverse conversion/domain –the discontinuity from Dec 09 to Jan 10 is being handled through commentary accompanying ONS releases – the decision whether to backcast is deferred until more data are available