What Do Firms Tell Us About the Macroeconomy?; Answers from the Confederation of British Industry (CBI)’s Suite of Surveys
It is now widely recognised that policy analysis can be seriously misleading unless it is conducted using the data that was available at the time the policies were actually made. There has also been a recent surge in interest in ‘Behavioural Macroeconomics’ in which the standard assumption of rational agents making optimal decisions based on full information is finessed to recognise the potential role of information imperfections and individuals’ cognitive limitations.
Both of these developments suggest that macroeconomic analysis requires a detailed record of decision-makers’ understanding of the economy in real time. The CBI’s Suite of Surveys has provided exactly these insights on a monthly basis for thousands of UK firms for over fifty years. There are four main surveys in the suite, comprising the long-running Industrial Trends Survey, the Distributive Trades Survey, the Services Sector Survey and the Financial Sector Survey. The questions differ to reflect the nature of the business that is conducted in each sector. The surveys gather information from firms on various economic outcomes, both retrospectively and in expectation, and provide a rich source of real-time information on firms’ understanding of the state of the economy.
Our recent paper (read here) provides an overview of the data sample, structure and uses of the data collected through the CBI’s suite of business surveys, focusing on the monthly data recorded since 2000. This paper describes: the questions posed; the sample frame (including details on the number and participation rates of respondents); the characteristics of the firm participants; and a summary of the properties of the data relating to some key business cycle features, namely, movements in output, investment, capacity, and inventories.
The CBI Surveys provide measures of firms’ lived experience over recent months and their expectations over the coming months (relating to actual and expected changes in output, prices, costs, etc) as well as relatively detailed explanations of the thinking behind their utilisation of capacity and inventories and their investment plans. The interplay between actual and expected movements in output, capital utilisation and investment provides important information on the sources and propagation mechanisms behind the business cycle. Further, survey information can be particularly useful at times of unprecedented change, for example in judging the response to the coronavirus pandemic. This is because the firms’ stated expectations take account of the nature of the current episode just as they will have accommodated their understanding of any special circumstances arising in previous business cycle movements.
The CBI suite of business surveys is an excellent source of data regarding firms operating in the UK. It has an excellent panel structure, including a substantial cross-section of firms over a significant time horizon, which also allows individual firm responses to be tracked over time. The data provide direct insights on firms’ perceptions of what is happening to the economy now and in the near future. The timeliness of the surveys, produced monthly and effectively reporting in real time, means the surveys can be used to provide useful, up-to-the-minute ‘nowcasts’ of current events and forecasts of the near future.
The full Technical Report is available here.
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