European CommissionDirectorate General Economic and Financial Affairs

New question on capacity utilisation in services - state of play and way

forward

Marian NEAGU(Seconded National Expert)

Business and consumer surveys and short-term forecast (ECFIN A4.2)

ECFIN 2012 BCS WorkshopBrussels, November 15-16

2

• Introduction

• Current situation

• Analysis of results from Jul-2011 to Oct-2012

• Capacity utilisation in services vs industry (levels,

volatility)

• Consistency with other results

• Conclusions and EC proposal on way forward

Outline

3

Introduction

• The new question on capacity utilisation in service sector has been asked quarterly since July 2011

• Methodological aspects were set up by the task force (2008)

• The capacity utilisation is derived indirectly:

"If the demand addressed to your firm expanded, could you increase your volume of activity with your present resources? Yes – No If so, by how much? …%" CU = 100/(1+percentage of increase/100)

If a firm answers "No" its capacity utilisation is 100%

• Lively debates at 2011 workshop about the adequacy of the chosen approach

4

Introduction (2)

Previously presented results:

A. 2011 ECFIN-OECD workshop (2 obs. from 21 MS)• No major problems regarding the formulation• Further investigation in order to correct some

transmission errors• Weak cross-country correlation with industrial CU

• Possible answering practices problemsB. European Business Cycle Indicators, 2nd quarter 2012

(4 obs. from 24 MS)• Volatility comparable to that in industry• Significantly better cross-country correlation with

industry (over 0.5)• The comparisons are based on n.s.a. data• Overall plausible results

5

Current situation

• Data availability• complete set of data is lacking for 3 MS, as follows

(1 no service survey is conducted, 1 did not send the data, for 1 data available since April 2012)

• the analysis currently is based on 25 MS, covering more than 96% of the GVA in service sector (6 obs.)

• length of the time series still doesn't allow seasonally adjusting of data

• The concept of capacity utilisation in services (survey of

surveys - UK)

6

Results (Jul-2011 - Oct-2012)

Source: ECFIN; Note: the data are not seasonally adjusted

• Capacity utilisation in services is significantly higher than in industry and appears to lag 1 quarter

%

7

Results (Jul-2011 - Oct-2012) (2)

pp

Difference between CU in services and manufacturing

Source: ECFIN; Note: the data are not seasonally adjusted

8

Results (Jul-2011 - Oct-2012) (3)

The cross-country correlation has improved over time, reaching 0.5 in October 2012

Oct 2012 (0.5 from 0.34 in

Oct 2011)

Source: ECFIN; Note: the data are not seasonally adjusted

9

Results (Jul-2011 - Oct-2012) (3)

Volatility comparable or even lower than in manufacturing

Volatility is defined as average(|Δ CU|)/average(CU)

Source: ECFIN; Note: the data are not seasonally adjusted

10

Results (Jul-2011 - Oct-2012) (4)

CU trend consistent with the employment and demand assessments…

Source: ECFIN; Note: the data are not seasonally adjusted

11

Results (Jul-2011 - Oct-2012) (5)

…with employment volatility in assessment having a more important role in the euro area

Source: ECFIN; Note: the data are not seasonally adjusted

12

Conclusion and way forward

• The current formulation seems to ensure a sufficiently

good understanding by respondents • plausible differences compared to industry• cross-country correlations reasonably high• lower volatility than in industry

• Improvements in the results from vintage to vintage

• Comprehensive EU/EA set of data: still a challenge!

• Publication of the data/aggregates envisaged for July

2014 (12 observations)

• Continuation with the present approach