Discussion Contributed
Paaers Setcion 3
Discussion of the Contributed Papers to
Session 3: The role of Sentiment Indicators in
tracking economic trends
Gian Paolo Oneto
ISTAT
International Seminar on Early Warning and Business
Cycle Indicators
Scheveningen, 15 December 2009
1
Discussion Contributed
Paaers Setcion 3
The topics to be discussed
1. Just two papers contributed…May be this is a signal that
the role of sentiment indicators is still not clearly
recognized and duly taken into account in the field of
official statistics. This is in contrast with the very relevant
role given to the same indicators by users (particularly
analysts of short term economic evolution).
2. The first paper (from Insee, France) is a contribution in
the field of applied works focusing on the extraction from
sets of climate indicators of (advanced) signals of turning
points of the business cycle.
3. The second paper (from the National Bureau of Statistics
of China) is based on a different approach to “sentiment
indicators”. In fact it presents a system of cyclical
composite indicators that both aims at tracking the
Chinese business Cycle and at gauging signals of the
underlying “business climate” (in other words warning
signals of imbalances in the macroeconomic status).
Scheveningen, 15 December 2009
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Discussion Contributed
Paaers Setcion 3
Paper “The Contribution of Business Survey to the detection
of turning points of the economy”, E. Dubois INSEE (1)
The paper explores further a well established approach to
the measurement of the situation of the economy over
the Business Cycle (BC)
Calculating the probability that the cycle is in a status of
expansion (or of recession) using a Markov-switching model
(transition between two hidden or latent status). This
approach is utilized officially by INSEE that publish monthly
turning point indicators for the French and for the European
economy
The specific extension presented here is the construction
of a set of BC turning point (leading) indicators for some
European aggregation (not clearly identified) based on
the signals extracted from 5 variables of the (industrial)
climate surveys for EMU and other Eu Countries
Scheveningen, 15 December 2009
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Discussion Contributed
Paaers Setcion 3
Paper “The Contribution of Business Survey to the detection
of turning points of the economy” (2)
The results for the Euro Area area (but also for Eu as a
whole) are rather disappointing as the BC phases are
difficult to disentangle (at least from visual inspection).
The results are more interesting using a sub set of 4 EA
Countries (BE, DE, FR, SP), and moreover adding 3 nonEMU countries (UK, SWE, DK).
The performance at this stage is scrutinized looking only to the
regularity and economic “relevance” of the implied BC
chronology without specific comparison with a reference
indicator (Eu or EMU? economy as a whole or industrial
sector?)
Scheveningen, 15 December 2009
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Discussion Contributed
Paaers Setcion 3
Paper “The Contribution of Business Survey to the detection
of turning points of the economy” (3)
The paper discuss in depth the performance of the
indicators over the two more recent turning points:
Summer 2008, the beginning of the crisis (but may be
the Emu was already in a downturn…), and Spring 2009,
the likely end of the recession.
As for the signals pointing at the downturn, the results are
interesting while not particularly good: full fledged signals of
the recession appear in June; indeed there is not much to be
drawn from this signal in terms of the cliff-diving fall of
activity that is going to happen.
About the most recent evolution, the probability switch from
negative to positive status as early as April 2009,
anticipating the expansion that (may be) begun in the third
quarter.
But here a simple, trivial, question must be answered: what is the
reference cycle?:
Scheveningen, 15 December 2009
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Recalling the graph showed in Ottawa: the IPI cycle compared
Discussion Contributed
with Industry business tendency…
Paaers Setcion 3
Industrial production (IPI), Orders and Production Expectations (survey data);
in levels (standardised )
EURO AREA (15)
GERMANY
1.5
1.5
1
1
0.5
0.5
0
0
-0.5
-0.5
-1
-1
-1.5
-1.5
-2
-2
-2.5
-3
IPI
ORDER
EXP-prod
-2.5
-3.5
IPI
ORDER
EXP-prod
-3
Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09
Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09
FRANCE
ITALY
1
1.5
0.5
1
0.5
0
0
-0.5
-0.5
-1
-1
-1.5
-1.5
-2
-2
-2.5
-3
-3.5
-2.5
IPI
ORDER
EXP-prod
Scheveningen, 15 December 2009
Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09
-3
6
IPI
ORDER
EXP-prod
-3.5
Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09
Discussion Contributed
Paaers Setcion 3
..and updating it with the most recent results
Industrial production (IPI), Orders and Production Expectations (survey data);
in levels (standardised )
EURO AREA (16)
GERMANY
1.5
1.5
1
1
0.5
0.5
0
0
-0.5
-0.5
-1
-1
-1.5
-1.5
-2
IPI
ORDER
EXP-prod
-2
-2.5
IPI
ORDER
EXP-prod
-2.5
Apr-06
Aug-06 Dec-06
Apr-07
Aug-07 Dec-07
Apr-08
Oct-08
Dec-08
Apr-09
Aug-09
Apr-06
Aug-06 Dec-06
Apr-07
FRANCE
Aug-07 Dec-07
Apr-08
Oct-08
Dec-08
Apr-09
Aug-09
Apr-08
Oct-08
Dec-08
Apr-09
Aug-09
ITALY
1.5
1.5
1
1
0.5
0.5
0
0
-0.5
-0.5
-1
-1
-1.5
-1.5
-2
-2.5
-2
IPI
ORDER
EXP-prod
Aug-06 Dec-06 Apr-07 Aug-07 Dec-07 Apr-08 Oct-08
Scheveningen,
15 December 2009
Apr-06
-2.5
Dec-08
Apr-09
Aug-09
7
IPI
ORDER
EXP-prod
-3
Apr-06
Aug-06 Dec-06
Apr-07
Aug-07 Dec-07
Discussion Contributed
Paaers Setcion 3
Paper “Establishment and empirical analysis of China’s
macroeconomic climate index and early-warning index” Pan
Jiancheng, National Bureau of Statistics of China (1)
The paper summarizes the process undewent to build a
system of BC indicators for the Chinese economy in
order to make available coincident, leading, and lagging
composite indicators. The system is termed
“Macroeconomic Climate indexes”: the terminology
issue is not to be underestimated…
The selection of the three typologies is somewhat non-standard
as the focus seems more on the economic rationale for the
choice than on their cyclical properties. In this respect the
lack of a well established system of short-term statistics is
an issue that this approach try to overcome.
However at least the target variable or reference concept of BC
(growth rate?) should be clarified: the year-on-year rate of
growth would be a questionable choice
Scheveningen, 15 December 2009
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Discussion Contributed
Paaers Setcion 3
Paper “Establishment and empirical analysis of China’s
macroeconomic climate index and early-warning index” (2)
The coincident indicator includes: industrial production,
employees in the industrial sector; “social demand”
proxies (fixed assets investment, retail sales, Imp-Exp);
“social income” proxies (tax revenues, profits,
disposable income of urban Households).
The leading indicator includes: Stock exchange index,
sales to output ratio (industrial sector); M2; investment
projects (?); two logistics activity variables (in volume);
two Real estate sector gauges (in volume).
The weighting system for the synthesis is tabulated but not
explained: is it related to the variance of the series or
the amplitude of the BC phases?
Scheveningen, 15 December 2009
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Discussion Contributed
Paaers Setcion 3
Paper “Establishment and empirical analysis of China’s
macroeconomic climate index and early-warning index” (3)
What are the results? The graph comparing the coincident
and the leading indicators deserves some comment.
The amplitude of the BC phases is very different between the
first and the second part of the period; without specific
knowledge of China economic evolution (i.e. in pure BC
feature terms) the very long phase of almost steady growth
rate (but is it measuring the rate of change of the economy?)
of the 00’s is puzzling; may be there is just a faint
acceleration in the pace of growth before the 2008 crisis
(and the crisis by the way is rather mild).
The leading properties of the CLI do not seem very stable over
time: the time span of the lead is very long up to 2000
(circa), and very short in the recent up- and downswings.
Scheveningen, 15 December 2009
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Discussion Contributed
Paaers Setcion 3
Paper “Establishment and empirical analysis of China’s
macroeconomic climate index and early-warning index” (3)
The second “level” of the system of cyclical indicators is
termed “Business Cycle Signal system and Macroeconomic Monitoring indicators”; it differs from our
standard tools for interpreting BC developments.
The approach boils down to develop a process to score the
different status of the cyclical development of each variables
(over-heating, heating, normal, likely cool, cool) according to
their specific values over the sample. The scores are
aggregated in a new composite indicator: its values are
categorized in 5 brackets translating in a kind of “early
warning” reading. In standard macroeconomic terms is may
be a very empiric approach to an “output gap” concept.
The recent readings are puzzling: in 2008 and 2009 the
Chinese economy has fluctuated almost always in the
“normal” status zone.
Scheveningen, 15 December 2009
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Discussion Contributed
Paaers Setcion 3
Some general remarks to conclude…
When talking about cyclical signals the reference variable
of the analysis mast be clearly stated, or in terms of
reference cycle (the NBER BC approach), or in terms of
target variable.
The same issue can be seen from another point of view:
while there is a general understanding of what is a
leading indicator (of GDP level or change, of IPI, of the
turning points of the classical BC or of the growth cycle)
we need to sharpen the definition of coincident
indicator.
Finally, about the role of sentiment indicators: still a lot of
work to do in bringing them in the standard tool-kit of
official statistics; to proceed, we need to enhance the
cooperation between statistical agencies and producers
of sentiment indicators.
Scheveningen, 15 December 2009
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