Mainstriming Data and Composite Indicators From Tendency Survey as Official Statistics Gian Paolo Oneto ISTAT Third International Seminar on Early Warning and Business Cycle Indicators

..from my presentation in Ottawa A key aspect that emerges from the current practices in both the leading indicators approach and the standard forecast modeling is the central role of business and consumer sentiment data … it is time to recognize that the quality aspects of the current practices prevailing in the production of such indicators are worth to be investigated from the point of view of the OS criteria. The Eu setting is already advanced in terms of comparability across countries, but could be further improved through coordination with the standard statistical production (for instance, concerning industry classification, reference years and variables to be utilized in the weighting structure). There is the perception that outside Eu the statistical underpinnings of survey data are even less comparable to the OS standards.

1. Why the interest of official statistics for the production process of Sentiment Indicators ? The Indicators drawn from the Business and Consumer Sentiment surveys (in the following BCS or Sentiment indicators) have played in the recent crisis a very important role in conveying early warnings of relevant movement of the business cycle. In many cases BCS indicators provided the most readily available signals of cyclical up-turn and down-turn (while confirming recently that they are less reliable or easy to interpret as far as cyclical accelerations and decelerations are concerned) . This development has strengthened the “status” of BCS Indicators in the view of users and producers, but has also revived interest (and doubts?) about the institutional underpinnings of their production process. Due mainly to a specific history and tradition, BCS surveys have remained in many countries outside the realm of Official Statistics.

2. The question: is the inclusion in the framework of Official Statistics useful for BCS indicators? As far as the definition of Official Statistics (OS) is concerned , we can consider a specific framework of codified practices. Here the framework is the one defined by the European Statistical System Code of Practice that fixes a set of principles covering “the institutional environment, statistical processes and outputs” of Eu statistics. Taking this framework as the reference point, it seems worth starting to examine the potential (beneficial) effects of applying the principles of Official Statistics to the production of BCS indicators. Then, questions arise about the possible ways to bring BCS and the derived indicators into the realm of Official Statistics (that does not mean to transfer the production oof this indicators to NSIs).

3. Features of Official Statistics that producers of sentiment indicators should adhere to A tentative list of the key principles of OS that seem at stake in the production of BCS Indicators when the process is carried out outside official statistics: Applying adequate quality standards (typical of Quality assurance frameworks routinely utilised in OS). Working in an Institutional setting able to ensure the best standards of independence (crucial for the relationship with respondents and users). Using best practices to disseminate the results (accessibility, clarity, equal treatment of all users...)

4. General problems concerning quality standards in the BCS domain Indeed sound methodologies and commitment to quality are not at all exclusive features of Official Statistics. However, the issue is how to ensure that quality standards are always prevailing with respect to any other consideration (for instance deriving from budget constraints or, to be explicit, from market forces). Official Statistics has developed comprehensive frameworks that are specifically devoted to monitor the quality of the collection, processing and dissemination of statistics: it seems straightforward to apply it to BCS but the problem is how to make this practice a generalised standard . The quality framework for BCS developed by Oecd and by EC (in terms of principles and methodologies) is an important step but fall short of the comprehensiveness of standards developed for OS domains (for instance for the PEEIs).

5. Specific methodological issues for BCS Two examples of highly relevant methodological issues that is very difficult to tackle outside the framework of Official Statistics:   The quality of the surveys depends crucially on using a regularly updated statistical business register (BR) in the definition of the sampling design and the reference list of units; for producers outside OS this can be a condition impossible to fulfill. It is crucial for the quality of the indicators (namely the estimate of the share of each response modality) that the definition of the weighting system is based on robust information; the availability of detailed structural statistics (about value added or turnover) can be insufficient outside the OS system. A host of other issues concerning the maintenance of the BR and the weighting system could be listed.

6 The relevance of the Institutional setting There are important provisions built in the institutional setting of Official Statistics that can affect positively the quality of BCS surveys (in particular data collection): Data collection is favored by the existence of a legal mandate to collect information for statistical purposes; in particular, it is important that business operators are compelled by law to deliver the requested information. The guarantee about the privacy of data providers, the confidentiality of the information they provide and its use only for statistical purposes are crucial to maintain a satisfactory degree of collaboration (and response rate). The response burden (also across different surveys) must be taken into account in the design of the surveys.

7 Aligning to OS the practices concerning the dissemination of sentiment indicators An aspect of practices used in the domain of BCS indicators that can differ from those recommended by Official Statistics is the one concerning the dissemination of results. In this respect, the reference to the Eu Code of Practice is straightforward: “– Statistical release dates and times are pre-announced. – All users have equal access to statistical releases at the same time and any privileged prerelease access to any outside user is limited, controlled and publicised. In the event that leaks occur, pre-release arrangements should be revised so as to ensure impartiality. – Statistical releases and statements made in press conferences are objective and non-partisan.” “– Metadata are documented according to standardised metadata systems. – Users are kept informed on the methodology of statistical processes and the quality of statistical outputs with respect to the ESS quality criteria. Moreover it must be stressed that users should benefit of data dissemination instruments integrating all the available indicators

Few remarks about how to tackle the issue of applying OS principles to BCS Indicators The process of discussing if the domain of BCS Indicators needs to fully adhere to the principles of Official Statistics must be brought at the adequate levels of governance of Statistical Systems (may be in steps). If a positive consensus emerge, the Statistical System has to devise the channels to open the discussion with the producers that are outside the OS framework (because of an institutional status or because the relevant Code of Practice is not binding). The role of EC (DG EcFin and Eurostat) and Oecd can be central in developing initiatives to step up the process of armonisation, heading in the direction of proposing standards very close to the one defined in OS. The pressure created by supranational initiatives should compound with an active stance of national authorities in opening a “negotiation” with producers of BCS indicators.