The BER’s business, consumer and inflation

expectation surveys

George Kershoff, BER

Presented at the macroeconomic seminar series of the School of Economics at the University of Cape Town, 5 October 2012

The BER’s business surveys

Origin

Business tendency surveys (BTS) developed

independently in Europe and US between world

wars

When BER started surveys in 1954, SA became 7th

country in the world

Today they are conducted world wide by

Statistical agencies (France, Italy, Russia, China)

Central banks (Some US Federal Reserve Bank districts,

Tankan in Japan, Belgium, Korea, Thailand)

Research Institutes (Germany, SA, Brazil, Poland)

Business organisations (UK, Australia)

Origin

Harmonised standards –

OECD – BTS handbook

Workshops and academic conferences organised by

CIRET (Centre for International Research on Economic

Tendency Surveys) and EU / OECD

Journal of Business Cycle Measurement and Analysis

History of the BER’s Tendency Surveys

Manufacturing and Trade (retail, wholesale & motor): 1954; data is electronically available since 1985

Building contractors: 1969

Building cost (quantitative): 1969

Consumer confidence: 1975 (whites), 1982 (blacks), 1994 (all)

Architects & quantity surveyors (1986), civil construction (1997)

Manufacturing PMI: 1999 – only monthly survey

Inflation expectations (quantitative): 2000

Financial sector: 2002

Other services (hotels, restaurants, transport, storage, real estate, business services): 2005 – not made public yet

How business surveys are conducted

Requirements: simple, rapid, voluntary

Use deliberate (convenience non-probability) sampling to create and maintain a panel of participants Degree of representation

Response rate

Questionnaire Few questions

Business activity and constraints

Only indicate “up”, “remain the same” or “down” compared to a year ago

Diffusion index = the degree to which the measured change is dispersed or "diffused" throughout the sample population.

Calculating the results

Firm and sector weights

Example:

60% “up”, 30% “same” and 10% “down”

Net balance: 60% “up” less 10% “down” = 50%

Survey data vs. official data: for

example, manufacturing production

-80

-60

-40

-20

0

20

40

60

80

95 97 99 01 03 05 07 09 11

Net

bala

nce

BER

-25

-20

-15

-10

-5

0

5

10

15

95 97 99 01 03 05 07 09 11

% c

han

ge Y

oY

Stats SA

Survey data vs. official data

-20

-15

-10

-5

0

5

10

15

20

-80

-60

-40

-20

0

20

40

60

80

95 97 99 01 03 05 07 09 11 13

% c

han

ge Y

oY

Net

bala

nce

Manufacturing production

BER Stats SA

In sum

Compliment official data – indicate direction of

change prior to its release

Reliability

Aggregate sector vs. sub-sector

Direction of change vs. size of change

Business confidence

Covers manufacturers, building

contractors, retailers, wholesalers and new vehicle

dealers

Indicates % rating prevailing business conditions as

satisfactory

Business confidence

0

50

100

75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13

Lo

w

Hig

h

RMB/BER BCI

Business confidence is an excellent

indicator of business cycle

-20

-15

-10

-5

0

5

10

15

20

25

30

0

10

20

30

40

50

60

70

80

90

100

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12

BCI Index (lhs) SARB Coincident % ch YoY (rhs)

Business confidence peaks before SARB

cyclical indicator

0

10

20

30

40

50

60

70

80

90

100

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12

BCI Index (lhs)

SARB upper

cyclical

turning point

Business confidence bottoms at the same

time as the SARB cyclical indicator

0

10

20

30

40

50

60

70

80

90

100

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12

BCI Index (lhs)

SARB bottom

cyclical turning

point

Business confidence vs. GDP growth

-6

-4

-2

0

2

4

6

8

10

0

10

20

30

40

50

60

70

80

90

100

81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13

BCI Index (lhs) Real GDP %ch YoY (rhs)

Purchasing managers index (PMI)

Survey method

Origin: Institute of Supply Management (ISM) in the

USA

Survey a panel of purchasing managers in the

manufacturing sector

Respondents must indicate whether nine activities

have “increased”, “decreased” or “remained

unchanged” compared to the previous month.

Require seasonally adjustment.

Index = % “increase” + ½ the % “no change”

Total PMI = 0.25% Business activity + 0.30% New

sales orders + 0.20% Employment + 0.15% Supplier

deliveries + 0.10% Inventories.

PMI vs. manufacturing production

-20

-15

-10

-5

0

5

10

15

20

35

40

45

50

55

60

65

99 00 01 02 03 04 05 06 07 08 09 10 11 12

% c

han

ge

Yo

Y, 2 p

er

MA

Ind

ex

PMI (lhs) Mnf prod Stats SA (rhs)

Consumer confidence

Origin and how consumer confidence

surveys are conducted

Origin: University of Michigan

In SA, personal interviews of a representative

sample of 2500 adults

Questions

Economic performance of country in 12 months’ time

Household financial position in 12 months’ time

Rating of present time to buy durable goods

Origin and how consumer confidence

surveys are conducted

Net balance results could vary between -100 and

+100

Results are available per

Question

Income group

Other: LSM group, Age, Gender, Province

Consumer confidence vs. spending

-10

-5

0

5

10

15

-40

-30

-20

-10

0

10

20

30

82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12

CCI Index (lhs) % ch YoY in PCE (rhs)

Consumer confidence

-30

-20

-10

0

10

20

30

40

07 08 09 10 11 12 13

CCI per question

EconomyOwn financesTime to buy

07 08 09 10 11 12 13

CCI per income group

High >R5000

Low <R5000

Inflation expectations

The survey method

Origin

Dedicated quantitative survey

Follow Philadelphia Fed’s Livingstone and Reserve

Bank of New Zealand’s surveys

Quarterly frequency

Who are surveyed and how?

Business executives, analysts and labour union

representatives

Mail questionnaires to a panel of participants

Households

Personal interviews of a sample of adults

Participants

Panel of analysts, business and labour

Sampling method & panel maintenance

Sample size

Analysts 32

Business 763

Labour 42

Households

Stratified randomly selected sample of 2 500 largely

urban adults

Questions

Analysts, business and labour

Households

Over the past five years prices increased by on average

7.0% per year. During 2011 prices increased by 5.0% By

about how much do you expect prices in general to

increase over the next 12 months?

07-11 2011 2012 2013 2014

What do you expect the average

overall inflation rate (as measured

by the percentage change in the

CPI) to be during the year

7.0 5.0

Impact of

Per calendar year

Provision of historical data

Processing of the survey results

Analysts, business and labour

Mean

Rules for standard deviation

No revision - late responses are not included

Households

Exclude don’t know (11%) and responses >25% (2%)

Target inflation expectations

0

2

4

6

8

10

12

00 01 02 03 04 05 06 07 08 09 10 11 12

Per

cen

t

Survey quarter

Analysts: current year

Expectations Actual annual

-2

-1

0

1

2

3

4

00 01 02 03 04 05 06 07 08 09 10 11 12

Perc

en

tag

e p

oin

ts

Survey quarter

Analysts: current year

Forecast error

0

2

4

6

8

10

12

00 01 02 03 04 05 06 07 08 09 10 11 12

Per

cen

t

Survey quarter

Analysts: one year ahead

Expectations

-3

-2

-1

0

1

2

3

4

5

6

7

00 01 02 03 04 05 06 07 08 09 10 11 12

Perc

en

tag

e p

oin

ts

Survey quarter

Analysts: one year ahead

Forecast error

More information

www.ber.ac.za

gjkk@sun.ac.za

Copyright and disclaimer

This presentation is confidential and only for the use of the intended recipient. Copyright for this publication is held by Stellenbosch

University. Although great care is exercised to record and interpret all information correctly, Stellenbosch University, its division

BER and the author(s)/editor do not accept any responsibility for any direct or indirect loss that might result from accidentally

inaccurate data and interpretations by third parties. Stellenbosch University further accepts no liability for the consequences of any

decisions or actions taken by any third party on the basis of information provided in this publication. The view, conclusions or

opinions contained in this publication are those of the author(s)/editor and do not necessarily reflect those of BER or Stellenbosch

University.