The European Business Cycle Clock 


1. Introduction


The Business Cycle Clock (BCC) of Eurostat is a new graphical interface[1] for displaying developments of economic key indicators for Europe as a whole as well as for each single European country. It helps users in their understanding of economic up- and downswings, and of the evolution in time and across countries. It is a visual aid as well as a portal towards European key statistics through its direct links to these statistics.


In April 2009 Eurostat has introduced a new version of the BCC comprising new advanced functionalities as compared to the former BCC.

What’s new?

  • Switch indicators/countries: besides a graph displaying all selected indicators for a single country, it is also possible to display a graph showing all selected countries for a single indicator. This dual graphical functionality enables users to view the animated cyclical development across indicators within a country, but also across countries for a given indicator. Many of the indicators show a very similar cyclical pattern across countries, implying strong economic coherence between countries.
  • The number of countries and indicators simultaneously shown in the same graph is extended and the user can also define the color setting for the graphical elements.
  • The size of the graph can be enlarged by clicking on the  icon.
  • The graph can be printed  icon.
  • The graphical animation can be downloaded for running it off-line, i.e. without a connection to the Internet.



2. How does it work?


The BCC covers a wide field of economic indicators, such as GDP, consumption, investment, exports and imports, (un-)employment, Economic Sentiment, industrial production, industrial new orders, inflation, labour costs, producers prices, production in construction, deflated retail sales. Each of these indicators has been re-calculated in order to reveal more clearly their multi-yearly cyclical development. Short-term increases and decreases due to, for instance, seasonality have been removed from the series. The various steps of calculation are described in more detail in section 5.1.


The cyclical behaviour displayed by the graph (see figure 1) distinguishes four phases: (1) the indicator is above its long-term trend and is increasing, (2) it is still above the long-term trend, but after having reached a peak it is now gradually moving downwards, (3) after subsequent decreases it reaches levels below the long-term trend and is heading into a trough, and (4) gradually picks up again by pulling itself out of this trough with positive numbers even though still under the long-term trend. Each of these phases are coloured correspondingly. In general the indicators move in time like the arrows, evolving from one phase into the other. Sometimes a full cycle takes around 4 years, other times it could be more or it could be less; there is no rule of thumb for forecasting cyclical time span.


Figure 1. Four basic phases of cyclical development  



Besides the graph, users have an overview of the most recent (growth) rates of the indicators and the countries which have been selected (see figure 2).


Figure 2. Selection pane of countries and indicators, and their latest values




Here the users can select the indicators and countries they want to include in the graph, and define the colour scheme. 


The BCC combines both graph (figure 1) and selection pane (figure 2) into a one page interface including an animation control below the graph for watching economic evolution in a dynamic fashion. As can be seen from figure 3 each indicator is represented by its own graphical symbol, and by mouse-over the symbol the title of the indicator is highlighted within the graph.









Figure 3. Business Cycle Clock for EU27




In December 2008 the graph shows that the majority of EU27 indicators are cyclically decreasing and below the long-term trend. The animation panel below the graph enables the user to move backwards and forwards in time, watching the business cycle in a dynamic animated fashion. In general the time series start from 1990 onwards. For some series data is only available as from 1995. The animation shows that in some of the indicators are leading the business cycle – such as Economic Sentiment and Deflated Retail Sales – and some are lagging behind, for example employment.


With the tabs on top of the graph (numbererd 1 to 6 and all) the user can immediately switch between selected countries, and by clicking on the ”all”tab also watch these countries simultaneously in one graph.


Users can also print  the graph or bookmark  their selection for immediate access later on or for e-mail purposes. By downloading the web page, users are able to run the BCC off-line, i.e. without Internet connection.


More detailed information on each indicator can be activated through the four buttons to the right of each title, opening: a short description; a table with more data, and customizable graphs and maps. An example (GDP) of these tables, graphs and maps can be found in the annex.


When clicking the link Switch indicators/countries the BCC page reverses indicators and countries in both the graph as well as the right part of the web page (see figure 4).

Figure 4. Business Cycle Clock for GDP for all European countries




In this graph the indicators are switched with the countries, such that the graph now displays all (selected) countries for a single indiactor. Here, GDP has been selected. The graph reveals a strong interdependency/similarity in the cyclical movement across countries. This interdependency is even stronger for some of the leading indiactors such as Economic Sentiment (see figure 5, blue icons).


Figure 5. Business Cycle Clock for GDP (red) and Economic Sentiment (blue)




3. Current status of the BCC and next steps of improvement


Eurostat is developing its new web interfaces such as the BCC in an incremental way, starting with basic functions – i.e. the current BCC- gradually adding new functions and improving the look and feel.


In April 2009 Eurostat has released the second version of the BCC, with several new functionalities and an enhanced usability (see section 2 for more details).


In the near future the BCC will include

  • New set(s) of indicators besides the current set of Principal European Economic Indicators.
  • A demo for both specialists and more basic users in order to achieve a better understanding of economics in general and the business cycle in particular.

4. Some more analytical examples


Figure 6 below highlights the fact that the cyclical stage of Gross Domestic Product (GDP) is somewhere in-between the cyclical stages of its building blocks Consumption, Investment, Imports and Exports. In an open economy such as the Netherlands, exports are often a driving force behind a recovery. In the recovery period Dutch investment is lagging a bit behind, moderating GDP increases.  


Figure 6. Dutch GDP and its components






An animated comparison between EU27 (red icons) and the US (blue icons) reveals that at the dawn of the new millennium (see figure 7.a) both were in the well performing "green" phase of the business cycle. At the end of 2000 the US indicators were over their peak, still above the long term trend, however, moving downwards, while EU27 was peaking (see figure 7.b).


Figure 7.a. EU27 and the US in Jan 2000          Figure 7.b. EU27 and the US in Dec 2000


Figure 7.c. EU27 and the US in Jun 2001         Figure 7.d. EU27 and the US in Jan 2005


Mid of 2001, EU27 was in a similar phase of the business cycle as the US was half a year before (see figure 7.c). Meanwhile the US was heading further into a trough. It was not until  2005 that EU 27 was passing a trough, the US indicators already being back on track heading towards a new peak (see figure 7.d) which was reached roughly Mid of 2007. EU27 indicators reached their peak approximately End of 2007.

5. Some methodological and technical notes  


5.1 Method of calculation


The graphical data is based on a re-calculation of seasonally adjusted statistical time series. Except for prices which are as usual practice not seasonally adjusted. All the series are either expressed as an absolute index or as an absolute number, i.e. not as a growth rate. As a first step in the calculation each of the series is de-trended. As a second step the cyclical component is extracted[2] by the Christiano-Fitzgerald (CF) band-pass filter. In order to make the cyclical series mutually comparable in terms of magnitude, each of the series is normalized so that each has an average of zero and a unit standard deviation. With this last step of calculation all series fit within the same graphical frame, without affecting the direction of cyclical development of the indicator.


Because of these various steps of re-calculation, the resulting values are only valuable within the graphical framework of the BCC. These cyclical values do not have their own meaning like the original statistics do[3]. Real statistical data, i.e. the original counterpart of the graphical values, are displayed on the right of the graph. As such the main purpose of the BCC graph is to help users in a visual way, to create interest, and to offer a doorway to economic key statistics of Europe.


5.2 The BCC application


The BCC is built on open sources, client-based and runs entirely within the Internet browser with just a few calls to Eurostat's server. The graphical display is Flash based. For the data input holding the time series of the indicators, an XML format is used. The back-end of the BCC system is also compatible with SDMX[4].


Twice a day (11:00 am and pm) the BCC checks for new data and recalculates its internal cyclical values accordingly.


In the medium-term Eurostat intends to make the BCC application generally available to other (statistical) organisations within the framework of the EU-PL rules of the European Commission. To a large extent the BCC settings and language(s) can be modified by changing the configuration files. 



ANNEX: Information behind the table, graph and map buttons of the BCC


The information which is opened when the users clicks on one of the buttons on the right of the indicators is shown in the screenshots presented below. The following screenshots are taken from the GDP indicator. Figure 8 opens with the simple default table of GDP, which the user can download, print, save, etc, or by simple clicking create graphs or maps (see figures 8.b. and 8.c.). These self-created graphs and maps can be printed and saved or bookmarked for later instant re-use. Here the user can also find a more elaborate methodological description of the indicator.


Figure 8.a. Table view on GDP for the latest 12 periods for all countries.



Figure 8.b. Customizable graphs of GDP          Figure 8.b. Customizable maps of GDP




[1] Acknowledgements go to Statistics Netherlands for sharing their visual concept of tracing business cycles.

[2] The CF filter is used as a default, with 2-10 years as lower and upper boundaries. These boundaries tend to yield rather smooth cyclical patterns, and implicitly relatively stable long term trends. Alternative methods, such as the Hodrick-Prescott filter, the Henderson filter, the Phase Average Trend method and others have been/will be under investigation, and some of them are/will be built into the back-end of the BCC application (as plug-in) for analytical purposes and fine-tuning of BCC filter settings. A methodological explanation of these filter methods can be found in Eurostat's working paper "Statistical Methods for Potential Output Estimation and Cycle Extraction"

[3] In real time earlier cyclical outcomes, i.e. their magnitude and relative position compared to the long term trend may change as new data streams into the series. These revisions, however, are expected to be limited for the chosen CF filter settings. Furthermore the graphical display concentrates on the direction of cycle evolution, instead of the magnitude of single cycle "observations". Fine-tuning of the BCC settings (see footnote 2) will aim at further reduction of these revisions.

[4] SDMX is an XML type of standard for international exchange of statistics, supported by OECD, IMF, ECB, Eurostat and others.