Companies Survey - Main Findings - Third quarter of 2014

Based on the reports by companies and businesses that responded to the Bank of Israel’s survey, there was a decline in business sector activity in the third quarter of 2014, against the background of, among other things, Operation Protective Edge. The survey indicates that net balances were negative for all industries, with the sharpest declines in hotels industry activity. The decline in activity this quarter is seen in both domestic sales and in exports. The expectations reported by companies in the current survey are not uniform: in the services, transport and communication industries, expectations are for recovery in activity in the coming quarter compared with the present quarter; while companies in the manufacturing, hotels, and trade industries expect the decline in activity to continue.

An analysis from the perspective of supply and demand constraints indicates that in most industries (excluding the construction industry), the demand constraint was the main limitation on conducting activity, with this constraint becoming markedly more severe in the hotels, trade, and services industries, apparently due to the effects of Operation Protective Edge. Compared with the previous quarter, there was a slight increase in the severity of the financing constraint, for both small and large companies.

The analysis by industry indicates that the decline in net balances of companies in the manufacturing industry reflects declines both in exports and in domestic sales. Manufacturing industry companies forecast that the declines will continue in the coming quarter, particularly in export sales. In the trade industry, in parallel with a decline in sales there was an increase in goods inventory. In the construction industry the net balance of volume of activity declined alongside a continued increase in the index of output prices, which is consistent with the continued dominance of supply limitations in the industry. The decline in activity in the hotels industry this quarter was relatively large, due to, apparently, the sharp decline in overnight stays by tourists from abroad during Operation “Protective Edge”. Hotels expected that the decline in reservations by tourists from abroad will continue next quarter as well, similar to the effects of deteriorations in the security situation in the past, which continued after the security situation ended. Activity declined in the transport and communication industries, and the services industry, as well, but expectations in those industries were for a notable increase in activity in the coming quarter.

The Research Department notes that the findings of the Companies Survey for the third quarter of 2014 are based on the responses of about 407 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”—defined as the difference between the percentage of companies, out of all the responses, reporting an increase and the percentage reporting a decline. In calculating the net balance, the direction of the change reported by the companies, but not the strength of the change, 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 of the economy, and the findings’ advantage is in being readily available and providing information rapidly, relative to other sources of data.