1. European Commission Directorate 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 Workshop Brussels, November 15-16

2. 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. 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. 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 problems B. European Business Cycle Indicators, 2 nd 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. 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. 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. 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. 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. 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. 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. 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. 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