Based on the reports by companies and businesses that responded to the Bank of Israel’s survey, there was a recovery in business sector activity during the fourth quarter of 2014, correcting the decline in the previous quarter during Operation Protective Edge.  This is reflected in the fact that the weighted net balance is positive and has returned to its pace of growth from the start of the year.  The survey shows positive net balances in most major industries, with the most prominent increases being in the manufacturing industry and in the transportation and communications industry.  The increase in activity during the fourth quarter was seen in both domestic sales and in exports.  In contrast, there were declines in activity in the trade industries during the fourth quarter as well.  Expectations reported by the companies are for continued improvement in activity at an even more accelerated rate, particularly in the trade and services industries.
An analysis of the various supply and demand constraints indicates that in most industries (excluding the construction industry), the demand constraint was the main limitation on activity, while it was somewhat less severe on the demand side, mainly in trade, compared to the previous quarter that was affected by Operation Protective Edge.  On the supply side, the financing constraint was somewhat more severe among small and medium-sized companies in the manufacturing and hospitality industries.
The analysis by industry indicates that the increase in the net balances of companies in the manufacturing industry reflects an increase in activity in the fourth quarter, which was mainly the result of an increase in sales to the domestic market, particularly among large companies and among low technology companies that are more sensitive to the depreciation of the shekel that took place in the fourth quarter.  Manufacturing industry companies expected that the increases would continue in the coming quarter.
The net balance of sales in the trade industry remained negative for the third consecutive quarter, although more moderately so.  Furthermore, the upward trend of growth in inventory and the decline in the number of employees continued.  In contrast, expectations of activity in the coming quarter are positive and reflect an acceleration of sales.
In the construction industry, the decline in the net balance of the volume of work recorded in the previous quarters was halted in the fourth quarter.  The net balance of output prices continued to grow relative to the past, which is consistent with the continued dominance of supply limitations in the industry.
In the hospitality industry, there was a significant decline in activity in the fourth quarter compared with the same quarter in the previous year. However, it basically reflects the impact of the sharp decline in overnight stays by tourists from abroad during Operation Protective Edge, and the gradual recovery recorded in this figure in the fourth quarter of 2014.  In addition to the decline in activity in the industry, there was also no significant easing in the severity of the demand constraint during the fourth quarter, and the number of employees in the industry declined. Hotels expect that the decline in reservations by tourists from abroad will continue in the coming quarter as well, similar to the effects of deteriorations in the security situation in the past, which continued even after the security situation ended.
There was also an increase in activity in the transportation and communications industry and in the business services industry, and expectations in these industries are that there will be a notable increase in activity in the coming quarter.
The Bank of Israel Research Department notes that the findings of the Companies Survey for the fourth quarter of 2014 are based on the responses of 411 companies and businesses in various industries.
The survey’s questions are qualitative.  Companies are asked to report the direction of changes in various variables—increase, decline or stability—and to note the strength of the change—“great” or “slight”.
The results are analyzed by means of a “net balance”, which is defined as the difference between the percentage of companies reporting an increase and the percentage of companies reported a decline, out of all responses.  In calculating the net balance the direction of the change reported by the companies, but not its strength, is taken into account.  Thus, a net balance of zero indicates stability in activity, a positive net balance indicates an increase, and a negative net balance indicates a decline.  The strength of the change can be inferred from the size of the net balance.
The Research Department adds that Companies Survey data are generally in line with the trends of the macroeconomic data on the economy.  The advantage of the Companies Survey data is that they are readily available and provide information more rapidly than the other sources of data.