The Bank of Korea (BOK) has recently issued an Economic Sentiment Index (ESI) for January 2015. The Business Survey Index (BSI) on business conditions in the manufacturing sector for January 2015 was 73, unchanged from the previous month, but that for the outlook for the following month fell by 4 points to 73.
After seasonal adjustment, according to the BOK report, the BSI for January was 75, down 1 point from December 2014, and that for the outlook for the following month fell by 6 points to 74.
In the non-manufacturing sector, the BSI on business conditions for January was 69, unchanged from the previous month, but that for the outlook for the following month rose by 2 points to 70.
After seasonal adjustment, the BSI for January was 69, unchanged from December 2014, but that for the outlook for the following month rose by 2 points to 71.
The Economic Sentiment Index (ESI), a composite of the BSI and the CSI (Consumer Survey Index), for January 2015 was 95, up 2 points from December 2014.
Overview of Business Survey Index
What it means:
- The Business Survey Index (BSI) is compiled to grasp the business conditions for the current month and their outlook for the month following, by conducting surveys on entrepreneurs’ perceptions of them.
What is surveyed:
- A total of 15 items, including business conditions, sales and profitability, are surveyed at 2,862 corporations, which are selected using stratified systematic sampling and fall into the following classifications per the 9th revision of the KSIC (Korean Standard Industrial Classification):
o Manufacturing industry: 23 sub-sectors* classified by sections
* Manufacture of tobacco products has been included in the ‘other manufacturing’ sub-sector from July 2012.
o Non-manufacturing industry: 13 sub-sectors* classified by divisions
* The ‘sewerage, waste management and materials recovery activities’ sub-sector has been added and compiled from July 2012.
Overview of Economic Sentiment Index
What it is
- The Economic Sentiment Index (ESI), a composite of the BSI (business survey index) and the CSI (consumer survey index), is compiled to comprehensively grasp the private sector perception of economic conditions, including the sentiments of both businesses and consumers.
What it means
- An ESI reading above 100 is interpreted as meaning that economic sentiment in the private sector, including that of both businesses and consumers, is on a level better than past averages (and vice versa when the reading is below 100), since the ESI is constructed so that it is distributed around a long-term mean of 100 and a standard deviation of 10.
* BSI and CSI readings of 100 imply, as defined by their formulas, that the shares of positive and negative responses are equal.
o A long-term mean of 100 implies that the mean of ESI values is 100 over the standardization interval, from January 2003 to December 2014－the period for which BSI and CSI time series data are obtainable.
o The cyclical component of the ESI is compiled to track the cyclical patterns of economic sentiment, and is calculated by removing seasonal and irregular components from its original series.
How it is compiled
- The ESI is calculated by first choosing seven component indices that are highly responsive to the economy, from among the 40 BSI and 24 CSI component indices, weighted averaging each of their standardized indices, and then scaling the index so that it will have a long-term mean of 100 and a standard deviation of 10.
o The component indices and their weights are selected so that the ESI will be highly correlated with and responsive to GDP, a representative indicator of the real economy.
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