Business Climate

The Business Climate Indicator (BCI) combines 5 industry survey balances into 1 common factor for euro-area manufacturing only. It is published each month by DG ECFIN, the Commission's economics and financial affairs department, with Eurostat disseminating results and metadata. A standing panel of firms is resurveyed each month, with a nominal sample of about 38000 industry units and usable replies about 30% lower.

Its value is read in std-dev points around zero, the long-run average, with above-zero better than usual and below-zero adverse. It moves at the same time as overall industrial activity on a fairly smooth path, and a turn needs at least 2 months to confirm. It differs from the industrial confidence indicator, which uses only 3 series and a different method. It does not cover services, construction, retail trade or consumers, and it does not measure industrial output itself.

Firms usually answer in the first 2 to 3 weeks, and results reach DG ECFIN at least 5 working days before month end. It is published by press release 2 working days before each month end with the ESI, while December results appear in early January. A flash consumer reading lands around the 20th, the BCI appears with the ESI, and quarterly results follow in January, April, July and October.

Each release brings sectoral confidence indicators, the ESI, the Employment Expectations Indicator, the Economic Uncertainty Indicator, tables and a statistical annex. DG ECFIN revises data only slightly, mainly seasonally adjusted series rather than unadjusted ones, and country weights plus seasonal settings refresh each January. Long series are freely downloadable as Excel files.

The BCI moves with 5 equally treated seasonally adjusted industry balances, net shares of positive minus negative replies, with influence from their common link.

• Production trends in recent months: captures output momentum over the past 3 months.
• Overall order books: reflects the backlog of unfilled orders.
• Export order books: shows foreign demand alone, apart from domestic orders.
• Stocks of finished products: signals inventory overhang above normal, a counter-cyclical scale drawn inverted.
• Production expectations: covers planned output over the next 3 months.

In August 2018 the BCI eased by 0.08 points to 1.22, still above its long-run average. Past production and overall orders worsened markedly, while export orders and stocks edged down and expectations improved. The headline still fell because the shared signal across all 5 worsened. The lesson is that 1 component can move against the headline, since the method drops contradictory signals and 1.22 means above-average climate.

1. Balances: Each national reply share becomes a balance, positive minus negative replies, from -100 to +100.
2. Euro-area average: National balances are averaged using each country's share of manufacturing value added, smoothed over 2 years and reset each January.
3. Seasonal adjustment: Each euro-area series is cleaned for normal seasonal swings with Tramo-Seats software, whose settings refresh each January.
4. Common factor: The 5 cleaned series are centred on their means to combine into 1 shared signal, which explains about 92% of moves. No part gets extra weight upfront; influence comes from estimated linkages.
5. Example: Suppose balances are +8, -6, -4, +5 and +10; scaling and shared-signal math can give +1.2 std-dev points, or above-average climate. Leftovers unique to 1 question are dropped, so 1 part can oppose the headline.