19.4.2005
 
The Companies Survey for 2005:I indicates a continued rise in economic activity in all industries apart from construction
 
The Bank of Israel's Research Department advises that according to reports from companies participating in the Companies Survey, the rise in overall economic activity continued in the first quarter of 2005 in nearly all the principal industries (except for construction). The rise derives from increases both in exports and in activity for the domestic market. Nevertheless, there was marked moderation in overall activity in manufacturing, and in particular in manufacturing industries' domestic sales. Expectations for the second quarter are for improvement in the domestic market and exports in most industries.
The main findings of the survey are as follows:
Manufacturing: Manufacturing companies report a slowdown in their activity, resulting from a modest rise in exports and a standstill in domestic sales. The moderate increase in the number of employees continued. Companies reported slight increases in export orders for the next quarter and in orders for the domestic market. In the two-digit manufacturing industries at all levels of technological intensity companies reported that sales, output and exports all slowed, but that export orders for the second quarter rose. Advanced and mixed companies reported a fall in domestic sales, whereas traditional companies reported a rise in domestic sales and orders. The standstill in domestic sales reflects a drop in domestic sales of medium-sized manufacturing companies and moderate rises in those of small and large companies.
The reports of trading companies sshow their upward sales trend persisted, and also that they expected further rises in the second quarter. The demand-side constraints on activity––the economic and security situation in Israel and the global economic situation––were less severe, while supply-side constraints stayed at the same level of severity.
In construction the slump continued, although it eased somewhat, and the construction of buildings and infrastructures declined. For the first time, companies expect activity to rise a little in 2005:II.
Transport and communications companies reported a rise in total activity after the decline in the previous quarter. Trends in the secondary industries were not uniform: marine transport rose markedly, while air and land transport edged up. Activity in communications marked time. Transport and communication companies expect the rise in activity to accelerate in 2005:II. Companies reported a reduction in the severity of all demand constraints on activity from their level in the previous quarter, while on the supply side the financing constraint continued to be the main one, although it became slightly less severe than in 2004:IV.
Reports from the hotel industry indicated a continued rise in activity, reflecting the continued increase in the number of foreign tourists' bed nights and also a rise in Israelis' bed nights. Companies expect the rise to continue in the next quarter. The demand constraint remains the major constraint on implementing activity, although its severity declined considerably in 2005:I.
Companies in business services rreported that the substantial rise in revenue continued for the fifth quarter in succession, and covered sales of services both abroad and in Israel. Companies expect that total orders for 2005:II will rise further.
Companies' inflation expectations for the next twelve months (April 2005 to March 2006) rremained stable in the quarter under review at an average of 2.1 percent, similar to the level of expectations in the previous survey, carried out in 2004:IV. The mode and the median of the expectations also remained at about 2 percent, similar to those in the previous quarter. Nine percent of companies participating in the survey expected that inflation in the next twelve months will be higher than the upper limit of the price stability (1–3 percent inflation) target range, a similar proportion to that in the previous survey. Eighty-three percent of companies that responded expected inflation in the next twelve months to be within the target range. The variation of the expectations was a little lower than that in the previous quarter.
Expectations regarding the NIS/$ exchange rate: companies expected the exchange rate in twelve months (end-March 2006) to reach NIS 4.55 per dollar, on average, compared with NIS 4.59 in the previous survey. Three-month expectations, i.e., for the end of the second quarter of 2005, are that the exchange rate will be NIS 4.41 to the dollar.
The survey's findings for 2005:I are based on responses to questionnaires received from about 550 companies. The questions in the survey are qualitative, i.e., the companies are asked to report on the direction of changes in the different variables (increase, decrease, or no change), and on the degree of change (great, slight). In all industries, except for hotels, companies are asked to indicate the actual change compared with the previous quarter, without seasonal or other adjustments. In the hotel industry, companies are asked to report the change from the equivalent quarter in the previous year. The net balance of activity in the transport and communications industry is calculated as the weighted average of the net balances of the separate components of the industry, using the weights of the product of each component in the total product of the industry. The results are analyzed by means of the net balance, defined as the difference between the percentage of participating companies reporting increases and the percentage of those reporting decreases. In calculating the net balance the direction of change reported by companies is taken into account, but not its degree. Thus a net balance of zero indicates that activity was stable, a positive balance shows an increase, and a negative balance, a decrease. The extent of the change can be derived from the size of the net balance. The results of the survey are generally found to match the macroeconomic data on the economy, and have the advantage of being readily available and supplying information more quickly than the other sources of data.