SNB develops economy-wide capacity utilization for Swiss data

Resource utilisation is a key indicator for assessing an economy's cyclical position and is crucial for estimating total factor productivity.

Despite its importance, comprehensive, economy-wide, and long time series of capital utilisation are often unavailable.

Instead, single-sector series, typically from manufacturing, are used as a proxy.

This approach overlooks significant sectoral heterogeneity, as demonstrated by the divergence between manufacturing and services capacity utilisation in Switzerland.

To address this, a new Swiss National Bank working paper develops an economy-wide measure of aggregate capacity utilisation for Switzerland.

This measure covers eleven sectors, representing approximately two-thirds of the economy, and extends back to Q1 1995, providing a valuable indicator for business cycle analysis and unbiased TFP estimates.

The methodology relies on survey data, avoiding model errors and revisions while providing timely insights.

Using KOF Swiss Economic Institute data, series were extended back to Q1 1995 for various sectors, preserving specific tightness cycles.

Aggregation employs a weighted average based on sectoral capital stock shares from the CompNet dataset.

Robustness tests confirmed similar results using value-added shares, a key finding for countries without capital stock data.

Extensive sensitivity analyses validate the methodology.

Evaluations show this aggregate series is a superior indicator for macroeconomic analysis, correlating strongly with GDP and investment growth, and significantly impacting inflation compared to manufacturing utilisation.