About the Valve Barometer
The Valve Barometer (VB) is a monthly indicator of business confidence in the global valve industry, based on a survey of valve and actuator manufacturers conducted by Resolute Research. The survey gauges manufacturers’ expectations concerning various measures of business dynamics in the upcoming month and medium term compared to the current month. Full survey results will be reported in the Valve Barometer Report, to be published in the beginning of each month, starting in July 2021. The primary objective of the VB is to provide valve and actuator manufacturers with a simple yet effective means of benchmarking their business confidence against that of the wider valve industry. Potential beneficiaries of this forward-looking statistical tool include all other members of the valve and actuator supply chain as well as investment managers and stock traders.
Methodology
In the last full week of each month, a standardized questionnaire is sent to a panel composed of invited representatives of valve and actuator manufacturers from around the world. The companies participating in the survey include both publicly traded and privately owned firms of all sizes, ranging from SMEs to multinational corporations. Their answers are weighted equally, regardless of company ownership type, size, or country of operation. The core of the questionnaire consists of 12 fixed-choice questions concerning manufacturers’ expectations for the future. Survey participants are asked to indicate whether they expect an increase (“higher”), decrease (“lower”) or no change (“unchanged”) within each of the following categories:
- New Orders – Next Month
- New Orders – In 3 Months
- New Orders – In 12 Months
- Output
- Employment
- Backlog of Orders
- Quantity of Purchases
- Stock of Purchases
- Stock of Finished Goods
- Input Prices
- Output Prices
- Suppliers’ Delivery Times
* Note: The Suppliers’ Delivery Times index is inverted when included in the composite VB index.
For each category, participating companies are also provided with the opportunity to shed light on the underlying drivers of their expectations. Respondents are asked to limit their responses to the valve and/or actuator division of their company. They are also requested to specify whether their answers pertain to the valve and/or actuator division of their company as a whole or to that of a particular business unit.
Once the survey is closed at the end of the month, individual company responses are aggregated into a diffusion index for each category, resulting in 12 individual indices. Five of these indices (New Orders, Output, Employment, Stock of Purchases, Suppliers’ Deliveries Times) are then equally weighted and combined to form the composite VB index. All survey findings are reported in aggregate to protect the anonymity and confidentiality of the respondents.
Valve Barometer data calculation
VB data is presented in the form of a diffusion index which measures the degree to which a change is dispersed or diffused in a group. Respondents to the VB survey indicate each month whether they expect an increase, decrease or no change within each of the 12 survey categories, compared to the current month. All VB indices are calculated by taking the percentage of respondents indicating that they expect an increase (“higher”) and adding it to one half of the percentage of respondents indicating that they expect no change (“unchanged”). For example, if 35% of respondents responded “higher”, 45% “unchanged”, and 20% “lower”, the diffusion index would be 57.5 (35% + [0.50 x 45%] + [0 x 20%]).
Interpreting the data
An index reading of 50 is neutral, indicating expectations of no change compared to the current month. A reading higher than 50 indicates positive expectations, while a reading lower than 50.0 indicates negative expectations. The distance from the 50 no-change mark signals the rate of change, as illustrated by the following graph:
Thus, for example, if a VB index reading of 56 falls to 52 a month later, this should be interpreted as a sign of declining business confidence yet still optimistic outlook, since any reading above 50 means that the percentage of respondents expressing expectations of improvement is higher than that of those expecting deterioration. Conversely, if a VB index reading of 44 grows to 48 a month later, this should be interpreted as a sign of improving business confidence yet still pessimistic outlook.
Valve Barometer Report
The Valve Barometer Report is a detailed, monthly summary of the VB survey findings, released in PDF format by the 10th of each month. Survey participants receive a complimentary copy of the report; subscriptions are available to other interested parties. An annual subscription (12 issues) costs €495.