CHAPTER 5 – Session 11 United Nations Statistics Division/DESA Revision of the Index of Industrial Production (IIP) publication by the UNSD

2 Chapter 5 Summary of chapter:Summary of chapter: This chapter presents:This chapter presents: A recommended approach to compile an IIP;A recommended approach to compile an IIP; A step-by-step guide is used to demonstrate the recommended compilation process.A step-by-step guide is used to demonstrate the recommended compilation process. Additional topics including benchmarking and quality assessment are also included.Additional topics including benchmarking and quality assessment are also included.

3 Chapter 5 – Recommendations and Feedback General support for the structure and content of chapter 5.General support for the structure and content of chapter 5. Recommendation: Type of index formula to be used – The Laspeyres index formula is recommended to construct the IIP.Recommendation: Type of index formula to be used – The Laspeyres index formula is recommended to construct the IIP. FEEDBACK – This recommendation is generally supported though the Fisher Index has also been suggested.FEEDBACK – This recommendation is generally supported though the Fisher Index has also been suggested. Recommendation: Missing data – Missing data are to be estimated using imputation techniques so the data matrix is complete.Recommendation: Missing data – Missing data are to be estimated using imputation techniques so the data matrix is complete. FEEDBACK suggests this recommendation is supported.FEEDBACK suggests this recommendation is supported.

4 Chapter 5 – Recommendations and Feedback Recommendation: Data adjustments (quality change) – Quality changes should be incorporated into the calculation of the IIP either via the use of the price index when deflation methods are employed, or by adjusting input data when volume extrapolation methods are used.Recommendation: Data adjustments (quality change) – Quality changes should be incorporated into the calculation of the IIP either via the use of the price index when deflation methods are employed, or by adjusting input data when volume extrapolation methods are used. FEEDBACK –FEEDBACK – Is quality adjustment of ‘quantity data’ (volume extrapolation method) really achievable?Is quality adjustment of ‘quantity data’ (volume extrapolation method) really achievable? It is advisable to show an example of quality adjustmentIt is advisable to show an example of quality adjustment

5 Chapter 5 – Recommendations and Feedback Recommendation: Data adjustments (seasonal adjustment) – Seasonal adjustment should be applied to the IIP data; occur at the lowest level of aggregation for which reliable estimates can be obtained so seasonally adjusted aggregates are computed as sums of seasonally adjusted components [the lowest level is generally at the 3- digit or 4-digit ISIC level]; and occur every period the IIP is calculated.Recommendation: Data adjustments (seasonal adjustment) – Seasonal adjustment should be applied to the IIP data; occur at the lowest level of aggregation for which reliable estimates can be obtained so seasonally adjusted aggregates are computed as sums of seasonally adjusted components [the lowest level is generally at the 3- digit or 4-digit ISIC level]; and occur every period the IIP is calculated. FEEDBACK suggests this recommendation is supported.FEEDBACK suggests this recommendation is supported.

6 Chapter 5 – Recommendations and Feedback Recommendation: Weighting variable (industry level of the index) – “Net value added at basic prices” data is recommended as the weight variable to compile the IIP for the levels of the ISIC structure.Recommendation: Weighting variable (industry level of the index) – “Net value added at basic prices” data is recommended as the weight variable to compile the IIP for the levels of the ISIC structure. FEEDBACK –FEEDBACK – Net value added at basic prices generally supported;Net value added at basic prices generally supported; More detail needed to explain why ‘net value added at basic prices’ has been selected.More detail needed to explain why ‘net value added at basic prices’ has been selected.

7 Chapter 5 – Recommendations and Feedback Recommendation: Frequency of weight update (industry level of the index) – Industry level weights of the IIP should be updated annuallyRecommendation: Frequency of weight update (industry level of the index) – Industry level weights of the IIP should be updated annually FEEDBACK - Concerns whether annual re- weighting is feasible (availability of data, quality of data at that time i.e. data are subject to revisions, etc)FEEDBACK - Concerns whether annual re- weighting is feasible (availability of data, quality of data at that time i.e. data are subject to revisions, etc)

8 Chapter 5 – Recommendations and Feedback Recommendation: Weighting variable (product group level of the index) – Value of output is recommended as the weight variable to compile the IIP at the product group level of the index.Recommendation: Weighting variable (product group level of the index) – Value of output is recommended as the weight variable to compile the IIP at the product group level of the index. FEEDBACK suggests this recommendation is supported.FEEDBACK suggests this recommendation is supported. Recommendation: Frequency of weight update (product group level of the index) – Product group weights should be updated at least every 5 years.Recommendation: Frequency of weight update (product group level of the index) – Product group weights should be updated at least every 5 years. FEEDBACK suggests this recommendation is supported.FEEDBACK suggests this recommendation is supported.

9 Chapter 5 – Recommendations and Feedback Recommendation: Incorporating new weights into the IIP – The chain linking method should be used when weights are updated, i.e. the new series should be linked to the old series producing the continuous series.Recommendation: Incorporating new weights into the IIP – The chain linking method should be used when weights are updated, i.e. the new series should be linked to the old series producing the continuous series. FEEDBACK suggests this recommendation is supported.FEEDBACK suggests this recommendation is supported.

10 Chapter 5 – Recommendations and Feedback Recommendation: Aggregation of the IIP – Aggregation from basic data items (products or product groups) should be done directly to industries, without an intermediate step of calculating indexes for establishments. Aggregations to higher level industries should be done in steps, in the case of ISIC through each level of ISIC, using the existing ISIC structure. That is, index numbers at the ISIC class (4-digit) level should be aggregated first to the ISIC group (3-digit) level, then to the ISIC division (2-digit) and finally section (1-digit) level.Recommendation: Aggregation of the IIP – Aggregation from basic data items (products or product groups) should be done directly to industries, without an intermediate step of calculating indexes for establishments. Aggregations to higher level industries should be done in steps, in the case of ISIC through each level of ISIC, using the existing ISIC structure. That is, index numbers at the ISIC class (4-digit) level should be aggregated first to the ISIC group (3-digit) level, then to the ISIC division (2-digit) and finally section (1-digit) level. FEEDBACK:FEEDBACK: The publication should include a discussion of an additional level of aggregation – products weighted together into product groups;The publication should include a discussion of an additional level of aggregation – products weighted together into product groups; To ensure that the deflated value output relatives are always 100 in the base year, suggestion is to calculate deflated output values by using the PPI first and then form the (deflated) output value relatives. This is the correct order to guarantee that the base year (=average of the 12 months) is 100. (i.e. step 3 should come before step 2).To ensure that the deflated value output relatives are always 100 in the base year, suggestion is to calculate deflated output values by using the PPI first and then form the (deflated) output value relatives. This is the correct order to guarantee that the base year (=average of the 12 months) is 100. (i.e. step 3 should come before step 2).

11 Chapter 5 – Recommendations and Feedback Recommendation: Benchmarking – It is recommended that benchmarking be applied to the IIP. The benchmarking techniques should be applied at a level of the indices that are disseminated to the public.Recommendation: Benchmarking – It is recommended that benchmarking be applied to the IIP. The benchmarking techniques should be applied at a level of the indices that are disseminated to the public. FEEDBACK - Some comments questioned whether the IIP should be benchmarked to the Annual National Accounts.Some comments questioned whether the IIP should be benchmarked to the Annual National Accounts. Benchmarking would lead to IIP revisions and cause problems for users.Benchmarking would lead to IIP revisions and cause problems for users. Comments suggest that benchmarking should be carried out for the most detailed industry indexes, rather than just those that are published.Comments suggest that benchmarking should be carried out for the most detailed industry indexes, rather than just those that are published.

12 Chapter 5 – Recommendations and Feedback Recommendation: Quality review – A quality review of the IIP should be undertaken every four or five years, or more frequently if significant new data sources become available.Recommendation: Quality review – A quality review of the IIP should be undertaken every four or five years, or more frequently if significant new data sources become available. FEEDBACK suggests this recommendation is supported.FEEDBACK suggests this recommendation is supported.

13 Chapter 5 - Discussion Are there any additional comments on the following topics:Are there any additional comments on the following topics: Laspeyres method;Laspeyres method; Quality adjustment when volume extrapolation method used;Quality adjustment when volume extrapolation method used; Net value added at basic prices as industry level weighting variable;Net value added at basic prices as industry level weighting variable; Annual update of industry level weights;Annual update of industry level weights; Steps to calculate the index;Steps to calculate the index; Benchmarking – should it occur?Benchmarking – should it occur?