1. Business and Consumer Confidence Indicators: Arab Region Experience Expert Group Meeting on Short-Term Statistics 16-18 February 2016 Amman, Jordan

2. Business and Consumer Confidence Indicators: Arab Region Experience Overview 1.Context: Relationship to other STEIs 2.What are Business and Consumer Confidence Indicators? 3.Existing international guidelines and recommendations 4.Principal elements of indicators 5.Compilation of confidence indicators 6.Pilot country experience 7.Methodologies used by pilot countries 8.Experiences of countries in other regions 9.Uses of Business and Consumer Confidence Indicators 10.Potential benefits for Arab Region 11.Discussion issues

3. Consumer tendency surveys Business tendency surveys Consumer confidence indicators Business confidence indicators Business confidence indicators Composite business cycle indicators Composite business cycle indicators Quantitative STEI component series Quantitative STEI component series Composite leading indicators Qualitative data Quantitative data 1. Relationship to other STEIs

4. 2. What are Business and Consumer Confidence Indicators? Consumer tendency surveys (CTS) Household surveys that collect (mainly) qualitative information on issues such as: household spending and saving intentions; assess household perception of the factors influencing these decisions. Responses from consumers reflect past, current and future economic situation. Consumer tendency surveys (CTS) Household surveys that collect (mainly) qualitative information on issues such as: household spending and saving intentions; assess household perception of the factors influencing these decisions. Responses from consumers reflect past, current and future economic situation. Business tendency surveys (BTS) Collect (mainly) qualitative information from company managers about perceptions of past, current situation of their business and their plans and expectations for the near future. Collect information on issues such as: assessment of recent trends in production; current levels of order books and stocks; expectations about production, selling prices and employment Business tendency surveys (BTS) Collect (mainly) qualitative information from company managers about perceptions of past, current situation of their business and their plans and expectations for the near future. Collect information on issues such as: assessment of recent trends in production; current levels of order books and stocks; expectations about production, selling prices and employment Consumer confidence indicators Composite of several CTS series to measure consumer perceptions of their personal current economic / financial conditions and that of the overall economy, as well as their expectations for the near future. Consumer confidence indicators Composite of several CTS series to measure consumer perceptions of their personal current economic / financial conditions and that of the overall economy, as well as their expectations for the near future. Business confidence indicators Composite of several BTS series to monitor the current and future business situation. Can be used as a leading indicator for predicting short-term developments in a country. Business confidence indicators Composite of several BTS series to monitor the current and future business situation. Can be used as a leading indicator for predicting short-term developments in a country.

5. 2. Quantitative v. qualitative data Quantitative data Collected in most statistical surveys Data are expressed in numbers, tons, litres, amounts of expenditures, etc Often require referral to records and accounts Quantitative data Collected in most statistical surveys Data are expressed in numbers, tons, litres, amounts of expenditures, etc Often require referral to records and accounts Qualitative data Respondents are required to assign qualities to the items of interest, e.g. whether their order books are “higher”, “lower” or “same” compared with some previous period. Ideally based on respondent perceptions and often do not require referral to records and accounts. Qualitative data Respondents are required to assign qualities to the items of interest, e.g. whether their order books are “higher”, “lower” or “same” compared with some previous period. Ideally based on respondent perceptions and often do not require referral to records and accounts.

6. 3. Existing international guidelines and recommendations University of Michigan US Conference Board Business Tendency Surveys: A Handbook, 2003 (OECD) Handbook on Constructing Composite Indicators: Methodology and User Guide, 2008 (OECD-JRC) A User Manual to the Joint Harmonised EU Programme of Business and Consumer Surveys, 2014 (European Commission) List of “Best Practice” for the Conduct of Business and Consumer Surveys, 2014 (European Commission) Handbook on Economic Tendency Surveys (United Nations 2015) [Draft] OECD System of Composite Leading Indicators (OECD, 2012) Handbook on Cyclical Composite Indicators (Eurostat, United Nations) [Forthcoming]

7. 4. Principal elements: Consumer confidence indicators ElementIssues ScopeTypes of households and persons to include: income levels, employment status, age restrictions, etc. Geographic coverage: all regions or restricted to urban areas of the country. VariablesWhich questions will provide required insights into demand side of the economy and consumer confidence? Will the questions be backward or forward looking? Questionnaire design Actual wording of questions / nature of response categories – comparability with other countries Recommend standard questions outlined in the Joint Harmonised EU Programme of Business and Consumer Surveys and UN Handbook on Economic Tendency Surveys. Other key elements Survey frame, sample design, estimation procedures, data collection, data processing, data dissemination, metadata: Similar issues for other STEIs Covered in detail in international recommendations

8. 4. Principal elements: Business confidence indicators ElementIssues ScopeSectors of the economy to include: economy-wide v. restriction to specific individual sectors. Main sectors included in most BTSs are: manufacturing, retail, construction, and other services, small number of countries also include the banking sector. Reporting unit: enterprise, establishment or local unit. Perhaps determined by structure of register frame used Geographic coverage: all regions or restricted to urban areas of the country. VariablesWhich questions will provide required insights into supply side of the economy and business confidence? Will the questions be backward or forward looking? Questionnai re design Actual wording of questions / nature of response categories – comparability with other countries Recommend standard questions outlined in the Joint Harmonised EU Programme of Business and Consumer Surveys and UN Handbook on Economic Tendency Surveys. Other key elements Survey frame, sample design, estimation procedures, data collection, data processing, data dissemination, metadata: Similar issues for other STEIs Covered in detail in international recommendations

9. 4. Principal elements: Standard topics Consumer tendency surveys (CTS) Micro-questions Financial situation of households Their intention or capacity to save Their intention to buy durable goods (past / future) Macro-questions General economic situation in the country Evolution of unemployment (past / future) Consumer prices (past / future) Consumer tendency surveys (CTS) Micro-questions Financial situation of households Their intention or capacity to save Their intention to buy durable goods (past / future) Macro-questions General economic situation in the country Evolution of unemployment (past / future) Consumer prices (past / future) Business tendency surveys (BTS) Expectations of future sales/production/business activity or situation. possibly also order books/demand (turnover); Past sales/production/business activity or situation; Stocks of finished goods; Selling prices; Employment; Capacity to export: competitiveness and export order books; Capacity utilization, factors limiting production. Business tendency surveys (BTS) Expectations of future sales/production/business activity or situation. possibly also order books/demand (turnover); Past sales/production/business activity or situation; Stocks of finished goods; Selling prices; Employment; Capacity to export: competitiveness and export order books; Capacity utilization, factors limiting production. Plus consumer / business demographics + additional country-specific questions

10. 4. Principal elements: Measurement scales Consumer tendency surveys (CTS) Very likely / fairly likely / not likely / not at all likely Yes, definitely / possibly / probably not / no A lot better / a little better / the same / a little worse / a lot worse Much more / a little more / about the same / a little less / much less Increase more sharply / increase slightly / remain the same / fall slightly / fall sharply Consumer tendency surveys (CTS) Very likely / fairly likely / not likely / not at all likely Yes, definitely / possibly / probably not / no A lot better / a little better / the same / a little worse / a lot worse Much more / a little more / about the same / a little less / much less Increase more sharply / increase slightly / remain the same / fall slightly / fall sharply Business tendency surveys (BTS) Above normal / normal for the season / below normal More than sufficient / sufficient / not sufficient Increase / remain unchanged / decrease Improve / remain unchanged / deteriorate Business tendency surveys (BTS) Above normal / normal for the season / below normal More than sufficient / sufficient / not sufficient Increase / remain unchanged / decrease Improve / remain unchanged / deteriorate Use: 3 / 4 / 5 option ordinal scales Scales converted into single numbers as: Percentages Net balances for each question Diffusion index

11. 5. Compilation of confidence indicators Confidence indicator Method ConsumerArithmetic average of the balances to questions on financial situation of households, general economic situation, unemployment expectations (with the inverted sign) and savings, over the next 12 months. IndustryAverage of the balances of questions in the industry survey relating to production expectations, total order books and stocks of finished goods (with the inverted sign). ConstructionAverage of the balances of questions in the construction survey relating to total order books and employment future tendency. Retail tradeAverage of the balances to the questions in the retail trade survey relating to present business situation, future business situation and stocks (with the inverted sign). ServicesAverage of the balances to the questions in the survey relating to present business situation, past demand and future demand.

12. 6. Pilot country experience Tendency surveys conducted by five of the seven pilot countries: Egypt, Qatar, Lebanon, Palestine, Tunisia (only BTSs) Six of the seven pilot countries attach high priority to development of such surveys or further development of existing surveys Some surveys not compiled within NSS – Is this an issue?

13. 6. Pilot country experience CountryIndicatorCompiling agencyFrequency EgyptConsumer confidence indicatorInformation and Decision Support Centre of Cabinet Business Barometer indexEgyptian Centre for Economic Studies QatarConsumer confidence indexMDPSQ Business confidence indexMDPSQ TunisiaBusiness Managers Confidence IndexNSOQ Business Climate IndexInstitut Ararbe des Chefs d’Entreprises and le Centre Tunisien de Veille et d'Intelligence Economique PalestineBusiness Cycle IndicatorPalestine Monetary FundM LebanonCoincident IndicatorBanque du LibanM Business composite indicatorBanque du Liban Consumer confidence indexByblos Bank / American University of BeirutSemi- annual

14. 7. Methodologies used by pilot countries: Egypt Consumer confidence indicatorBusiness Barometer Index Scopemanufacturing (50%), financial (13%), construction (12%), transportation (11%), tourism (8%), and communications firms (6%) Sub-indicesincome level of the household; confidence in the prevailing economic policies index; and the improved living conditions and the economic situation of the household and society as a whole expectations index Sample size1,000 households474 firms Compilationindicator calculated as a simple mathematical average of the three sub-indices Index is a simple average of the variables indices

15. 7. Methodologies used by pilot countries: Egypt Consumer Confidence IndicatorBusiness Barometer Index Scopemanufacturing (50%), financial (13%), construction (12%), transportation (11%), tourism (8%), and communications firms (6%) Sub-indicesincome level of the household; confidence in the prevailing economic policies index; and the improved living conditions and the economic situation of the household and society as a whole expectations index Sample size1,000 households474 firms Compilationindicator calculated as a simple mathematical average of the three sub-indices Index is a simple average of the variables indices

16. 7. Methodologies used by pilot countries: Qatar Consumer Confidence IndicatorBusiness Confidence Index ScopeMining and quarrying; manufacturing; electricity, gas and water; construction, distributive trade; other Services VariablesEconomic situation; job opportunities; situation of the economy; financial status for respondent and their household Volume of production; stock volume of finished products; final products price; business volume/ sales volume/ purchase orders; labour force volume; rate of profit Sample size480 heads of households750 enterprises Compilation

17. 8. Experiences of countries in other regions: Europe Joint Harmonised EU Programme of Business and Consumer Surveys launched by the Commission in 1961 Covers consumers, manufacturing, construction, retail trade, services, financial services Geographic coverage gradually extended over years and now includes all 28 Member states and four candidate countries (Montenegro, FYROM, Turkey, Serbia) Harmonised surveys carried out in countries by ministries, NSOs, central banks, research institutes, business associations, private companies Surveys conducted using a common methodology – largely consists of harmonised questionnaires and a common timetable European Commission, Eurostat, OECD have published standards over the years – now in UN Handbook

18. 8. Experiences of countries in other regions: Europe Main elements ElementDetail FrequencySix surveys conducted monthly. Some additional questions quarterly Sample sizeFor each survey varies according to the heterogeneity of their economies. Generally related to their respective population size. About 135 000 firms and more than 40 000 consumers are currently surveyed every month across the EU. AggregationAnswers from the surveys are aggregated in the form of “balances” Composite indicators Balance series then used to build composite indicators. Arithmetic means of answers (seasonally adjusted balances) to a selection of questions Data collection / Survey design Largely specific to each country List of Best Practice for Business and Consumer Surveys published by European Commission in 2014 Detailed metadata available at: http://ec.europa.eu/economy_finance/db_indicators/surveys/metadata/index_en.htm. http://ec.europa.eu/economy_finance/db_indicators/surveys/metadata/index_en.htm

19. 8. Experiences of countries in other regions: Europe Detailed metadata for each survey conducted by each country in Europe published by the European Commission: Survey sampling frame Size of frame list Characteristics of frame list (content) Frame list update Population (universe) Sampling method Sample size Sample error Response rate Treatment of non-responses Sample coverage Weighting scheme Sector coverage Periodicity Survey method Fieldwork period Remarks on methodology Compiling organisation demographics: name, address, contact person

20. 9. Uses of Business and Consumer tendency survey data: Main characteristics of survey output Main characteristics reflect on their uses: Because data can usually be provided without reference to records / accounts data are quickly available either before end of reference period or soon after Provide information about expectations for the near future. Use aggregate insiders information about market conditions Are not normally subject to revision Responses adjusted by informant [though should be tested]

21. 9. Uses of Business and Consumer tendency survey data May be used: As stand-alone indicators on business conditions In combination with other tendency survey data to compile Business and Consumer confidence indicators In combination with other STEIs for constructing business cycle composite indicators using various methodologies

22. 9. Uses of Business and Consumer Confidence Indicators Stand-alone indicators: In past survey data provided information on business conditions for the benefit of respondents Many of them are carried out by trade associations. Main users of survey results are still the respondents themselves. Detailed survey results broken down by sectors of activity provide valuable information on business conditions in their own sector as seen by their competitors and about the current and future business situation in their suppliers’ and users’ sectors.

23. 9. Uses of Business and Consumer Confidence Indicators Inputs to the compilation of economic confidence indicators: Can be compiled for the whole economy, by broad economic activities, for consumers Such composite indicators summarise a selection of key survey variables in a single synthetic indicator

24. 9. Uses of Business and Consumer Confidence Indicators Constructing business cycle composite indicators: Business cycles are an important feature of the economies of market-oriented industrialised countries Data series derived from economic tendency surveys are particularly suitable for monitoring and forecasting business cycles, especially when combined with other STEIs Used for predicting turning points in the business cycle. Facilitated by fact that they usually don’t need revisions. Many survey series provide advance warning of turning points in aggregate economic activity as measured by GDP or industrial production [Known as leading indicators in cyclical analysis].

25. 10. Potential benefits for Arab Countries Provide essential information for economic surveillance, short-term forecasting and economic research Complement existing quantitative STEIs – also potentially more timely Widely used to detect turning points in the economic cycle. Used in other countries by respondents (executives & analysts), industry associations, government analysts and policy-makers

26. 11. Discussion issues What are the main development statistical issues (apart from funding) for existing surveys and new surveys in other countries? For example: survey frames. Is there potential for developing / improving surveys in cooperation with organisations not within the NSS – e.g. industry associations, financial institutions?

27. Thank you Questions? Denis Ward teedward@gmail.com