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Business activity continued to expand in the second quarter of 2010. Orders for the third quarter indicate continued expansion of total business sector activity, but at only a modest rate in the manufacturing, construction and high-tech industries. |
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The increase in manufacturing was reflected in an increase in the net balance of domestic sales, while export sales increased only moderately. |
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Activity continued to increase in the business services industry, due to a rise in domestic sales, while exports remained unchanged. Expectations are that the same will occur in the third quarter, i.e., an increase in domestic sales and no change in exports. |
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The extent of building projects remained unchanged, and building starts and completions confirmed the weak level of activity. Output prices continued to rise in the second quarter. Companies noted that the land price constraint was the most effective on the supply side, and that it became more severe. |
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The average inflation expectations of the companies participating in the survey rose slightly, but stayed within the range defined as price stability. |
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Fifty-four percent of the exporting companies in the manufacturing industry reported that they use hedging instruments to safeguard themselves against the risks of changes in the exchange rates of other currencies against the shekel. |
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Forty-five percent of the transport and communication companies reported that they hedge, but only 26 percent of exporting service companies. |
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In the last twelve months the share of manufacturing companies that used hedging instruments to protect themselves against exchange rate risks remained steady. In service companies, however, 78 percent of exporting companies responded that they had reduced their use of hedging in the last twelve months, and only 8 percent stated that they had increased its use. |
| Reports from companies in the manufacturing industry show that the expansion of activity continued in the second quarter of 2010. The expansion was reflected in a increase in the net balance of domestic sales, while the net balance of exports increased only moderately. Most of the increase was in large companies, while medium and small companies reported a steady level of activity. Companies expect a modest increase in activity in the third quarter, particularly in export sales. |
| Trading companies reported an increase in the volume of sales in the second quarter, albeit it at a slower rate than in the first quarter. Nonetheless, companies forecast a faster increase in sales in the next quarter. Thanks to rising sales and forecasts of a continuation of this trend, trading companies report an increase in the number of employees in the industry, albeit a moderate increase relative to their reported increase in the volume of sales. |
| Business services companies reported an increase in activity, due to growth in domestic sales. The volume of sales of services abroad remained unchanged, thus moderating the rise in the volume of overall activity. The number of employees increased, and orders from abroad for the next quarter are expected to rise only moderately. Hence expectations of increased domestic sales in the third quarter are the main source of the expectations of overall increased activity. |
| Hotels reported a continued rise in activity (year on year) after the contraction in the industry in 2009 against the background of the economic crisis in Israel and worldwide. It should be emphasized that the growth in activity is relative to the low level of hotel activity in the second quarter of 2009, when the global crisis affected this industry as well. Following the increase in tourist bed nights in the first quarter, the number grew significantly again in the second quarter, and companies reported that low demand by overseas tourists is no longer the serious problem that it was last year. Companies expected a further expansion in the third quarter, as reflected in a sharp increase in the number of reservations. |
| In transport and communications, activity expanded in the second quarter. The increased activity and sales of services to Israelis encompassed all the sub-industries, and most prominently airline and marine transportation. A further increase in orders and activity is expected in the next quarter. |
| Construction companies reported stability in construction works in the second quarter, and other data on activity point to the weakness of the industry: no change in the volume of building starts, a small increase in the volume of building completions, and a reduction in the number of employees. The industry's output prices increased, with the most severe supply constraint continuing to be land availability. Expectations for the next quarter are for a modest increase. |
| In this survey companies were asked whether they used hedging instruments such as futures contracts and options to safeguard against the risks of changes in the exchange rates of other currencies against the shekel, and whether the extent of their use of such instruments changed in the last twelve months,. The replies showed that 54 percent of exporting manufacturing companies that answered use hedging, in transport and communications, 45 percent, and among service companies, only 26 percent. As expected, the larger the manufacturing or services company, the higher the proportion that used hedging instruments. It was also found that in manufacturing the share of companies that reduced their use of hedging in the last twelve months was the same as the share of responding companies that increased its use. In contrast, in the services industry 78 percent of responding exporting companies reported that they had reduced their use of hedging in the last twelve months, while only 8 percent reported that they had increased its use. |
| Companies' inflation expectations for the next 12 months (July 2010 to June 2011) increased on average to 2.6 percent, compared with 2.5 percent in the previous quarter, thus still within the target inflation range. Seventy-eight percent of companies felt that at the end of the year inflation would be within the range of the price-stability target (1–3 percent), compared with 92 percent that thought so in the last quarter's survey. |
| The distribution of companies' expectations regarding the development of the NIS/US$ exchange rate. Companies expected that in twelve months time (at the end of June 2011) the average rate of exchange will be NIS 4 to the dollar, compared with expectations of NIS 3.9 in the previous survey. Companies expected that the average rate of exchange at the end of the next quarter (2010:Q3) will be NIS 3.9 to the dollar, as against NIS 3.8 (expected for the end of 2009:Q2) in the previous quarter. The average exchange rate at the time the companies completed the survey questionnaire was NIS 3.85 to the dollar. |
| The Research Department reports that the findings of the Companies Survey for the second quarter of 2010 are based on the responses of 638 companies in various sectors of the economy. The research questions are qualitative: companies are asked to report on the direction of change of the various variables—increase, decrease, or stability—and to indicate the intensity of the change—"great" or "slight". The results are analyzed by means of the "net balance," which is defined as the difference in the overall reports between the percentage of companies reporting an increase and the percentage reporting a decrease. In calculating the net balance, the direction of change as reported by the companies is taken into consideration, but not its intensity. Therefore, a net balance of zero indicates stability in activity, a positive net balance indicates an increase, and a negative net balance a decrease. The intensity of the change can be inferred from the size of the net balance. The Research Department adds that the data of the companies survey generally matches the macroeconomic data of the economy. Its advantage lies in being available and providing rapid information relative to other data sources (national accounting data and current indictors, such as industrial production). |
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