Transcript European Commission Directorate General for Economic and Financial Affairs Report: The Economic Climate Tracer – A tool to visualise the cyclical stance of the.

European Commission
Directorate General for Economic and Financial Affairs
Report: The Economic Climate Tracer –
A tool to visualise the cyclical stance of
the economy using survey data
Christian Gayer
([email protected])
Joint EC/OECD Workshop on Business and Consumer Surveys
12-13 November 2007, Brussels
European Commission 2007
1
Motivation
Conventional use of business and consumer
survey results: time series plots
Can information be assembled/presented in a
different way, so as to
• create added value for standard users
• reach new audiences by attractive graphics
• increase overall service?
Example: Ifo’s "Konjunktur-Uhr“, similar tool was
used in DG ECFIN (”Survey Watch”)
European Commission 2007
2
Economic Climate Tracer
A new graphical tool used within DG ECFIN
• Plotting levels against monthly changes
• Rotation through quadrants of the graph
• Corresponding to (growth) business cycle
phases
• Involves smoothing of input series
• Main value added: Cross-section view provides
cyclical stance across sectors at a glance
European Commission 2007
3
Outline
1. Critical review of an earlier tool: the “Survey
Watch”
2. The Economic Climate Tracer
• set-up
• time-series view
• cross-section view
3. Critical note: smoothness vs. absence of
revisions
4. Conclusions
European Commission 2007
4
1. Critical review of an earlier tool: the
“Survey Watch”
• Similar to Ifo Business Cycle Clock
• Manufacturing industry
• Current business perceptions vs. expectations
(production, 3 months ahead)
• Anticipation: rotation through the 4 quadrants as
expectations should systematically lead
assessments
European Commission 2007
5
Survey Watch, 1990-2006
Euro area
France
3
Spain
2
Upswing
2
Boom
Upswing
2
Boom
Upswing
Boom
1
1
0
0
0
-1
-2
expectactions
expectations
expectations
1
-1
-2
-3
-3
-6
-4
Recession
-4
-2
0
current perceptions
2
4
-2
-3
Downswing
Recession
-4
-1
-3
-2
-1
Downswing
0
1
current perceptions
2
Recession
-4
3
-4
-3
Downswing
-2
-1
0
1
2
current perceptions
European Commission 2007
6
Drawbacks of the Survey Watch in
practice
• Short-term volatility dilutes systematic
developments within & between quadrants
• Too short lead of expectations no rotation, but
movements along the main diagonal
• Definition of quadrants not in line with
conventional business cycle phases, determined
by turning points
European Commission 2007
7
Survey Watch, smoothed data
2
Upswing
2
2
Boom
Upswing
Upswing
Boom
-1
-2
expectations
0
0
-1
-2
Recession
-3
-3
-2
-1
Downswing
0
current perceptions
1
0
-1
-2
-3
Recession
-3
2
Boom
1
1
expectations
1
expectations
Spain
France
euro area
-3
-2
-1
Downswing
0
1
current perceptions
Recession
-4
2
-3
-2
Downswing
-1
0
1
2
current perceptions
European Commission 2007
8
Drawbacks of the Survey Watch in
practice
• Short-term volatility dilutes systematic
developments within & between quadrants
• Too short lead of expectations no rotation, but
movements along the main diagonal
• Definition of quadrants not in line with
conventional business cycle phases, determined
by turning points
European Commission 2007
9
2. The Economic Climate Tracer (1)
• Inspired by Statistics Netherlands’ Business
Cycle Tracer
• Based on sectoral Climate Indicators, derived by
PCA from BCS input series
• Indicators are smoothed (low-pass HP)
• Standardised level on y-axis plotted against mo-m changes on x-axis
European Commission 2007
10
GRAPH 3: Diagram of the Economic Climate Tracer over time
2
ab ove average
1
o
Downswing
Boom
^
0
decreased
increased
-1
Upswing
Recession
b elow average
-2
-.4
-.3
-.2
-.1
.0
.1
.2
.3
.4
European Commission 2007
11
2. The Economic Climate Tracer (2)
• Important visual attraction: automatic circular
movement (counter-clockwise)
• Smooth evolution due to filtering
• Vertical dimension of the graph mirrors evolution
of the raw series
• Peaks in the upper centre of the graph, troughs
in the lower centre
• Quadrants correspond to growth cycle phases
European Commission 2007
12
Time series view of euro-area climate indicators,
Jan 2000 to Sep 2007 (1)
ECI
2.0
Boom
Downswing
1.5
1.2
07:09
Downswing
00:1
1.0
0.8
07:09
level
0.5
level
Industry
1.6
0.0
00:1
Boom
0.4
0.0
-0.5
-0.4
-1.0
Upswing
-0.8
-1.5
Recession
Upswing
-2.0
-.3
-.2
-.1
.0
.1
month-on-month change
-1.2
.2
Recession
-.3
-.2
-.1
.0
.1
.2
month-on-month change
European Commission 2007
13
Time series view of euro-area climate indicators,
Jan 2000 to Sep 2007 (2)
Consumers
2.0
1.5
Services
1.5
Downswing
Downswing
00:1
Boom
0.5
1.0
07:09
Boom
0.5
07:09
level
level
00:1
1.0
0.0
0.0
-0.5
-0.5
-1.0
Upswing
Upswing
Recession
-1.5
-1.0
-1.5
-.20
-.15
-.10
-.05
.00
.05
month-on-month change
.10
Recession
-2.0
-.25 -.20 -.15 -.10 -.05 .00 .05 .10 .15
month-on-month change
European Commission 2007
14
Time series view of euro-area climate indicators,
Jan 2000 to Sep 2007 (3)
1.5
Retaill trade
Downswing
00:1
1.0
07:09
0.5
Downswing
Building
1.6
Boom
1.2
Boom
00:1
07:09
level
level
0.8
0.0
0.4
-0.5
-1.0
Upswing
Recession
0.0
Recession
-1.5
-.16 -.12 -.08 -.04 .00 .04 .08 .12 .16
month-on-month change
-0.4
-.12
-.08
Upswing
-.04
.00
.04
.08
month-on-month change
European Commission 2007
15
Time-series view: summary
• Similar picture across euro-area sectors
• Peak in mid-2000
• Mini-cycles in 2002-2005
• Since 2006 in the boom quadrant
• Move to downswing quadrant in early 2007
European Commission 2007
16
Cross-section view
• Displays several indicators in one graph
• Focus on latest data point (smoothed)
• Coincident indicator of overall cyclical stance
• Comparative sector-wise analysis
European Commission 2007
17
Cross-section Economic Climate Tracer for the euro area
in September 2007
Euro area
above average
2
Downswing
Boom
1
0
decreased
increased
-1
Recession
ECI
Industry
Services
Consumers
Retail trade
Building
Upswing
-2
below average
-.4
-.3
-.2
-.1
.0
.1
.2
.3
.4
European Commission 2007
18
Cross-section view: euro area
• Peak passed in all business sectors
• Consumer climate marks peak, on the borderline
to downswing
• Building, retail trade and particularly industry
climate still at high levels
• Services and consumer climate at low levels,
never fully recovered from low 2003-05 level
European Commission 2007
19
Cross-section Economic Climate Tracer for Germany
and France, Sep 2007
Germany
France
above average
above average
2
2
1
1
0
decreased
increased
0
-1
-1
-2
-2
decreased
below average
below average
-.4
-.3
-.2
-.1
.0
increased
ECI
Industry
Services
Consumers
Retail trade
Building
.1
.2
.3
.4
-.4
-.3
-.2
-.1
.0
.1
.2
.3
.4
European Commission 2007
20
Cross-section view: Germany and France
• Germany in early downswing phase, sustained
by still relatively upbeat industry and consumer
climate
• France in late boom phase, exceptionally high
level of retail climate. All indicators cluster at the
border to downswing
European Commission 2007
21
3. Critical note: smoothness vs. absence of
revisions (1)
•
•
Crucial part of the Tracer: smoothing
Implies revisions as more observations
become available, especially around TPs
• Consequence: lag at turning points
• Flip side of suppression of erratic turns
• Timely and reliable TP-detection in noisy raw
series is difficult, too
 matter of choice!
European Commission 2007
22
3. Critical note: smoothness vs. absence of
revisions (2)
•
•
•
Focus on easy-to-use graphical tool
Risk of surprises mitigated by look at
unsmoothed series and
Combined look across sectors (clusters?)
 Still useful tool in monitoring turning points
European Commission 2007
23
3. Critical note: smoothness vs. absence of
revisions (3)
Technically:
• HP69 filter, i.e. excluding movements of less
than 18 months duration
• No de-trending of series
• Comparison with other filters: HP works well,
relatively fast in detecting TPs in real time
European Commission 2007
24
Conclusions
• Attractive, useful and efficient tool for visualising
and analysing the business cycle
• Reliable picture of the current overall state of
the economy
• Disaggregate approach enables comparative
sector-wise analysis (against historical average
and against other sectors)
• Helps to detect turning points
• Main value added: Cross-section view provides
cyclical stance across sectors at a glance
European Commission 2007
25