Archive:Household consumption expenditure - national accounts

This article analyses Household_consumption_expenditure in the European Union (EU), the concepts and nomenclatures used, data sources and the individual components ofwhich vary widely among Member States of the due to cultural, economic and some other factors affecting spending and saving habits.

The final consumption expenditure of households encompasses all domestic costs (by residents and non-residents) for individual needs. Among other things, it includes expenditure on goods and services, the consumption of garden produce and rent for owner-occupied dwellings.

Information on consumption expenditure, according to the Classification of individual consumption by purpose, combines three sources from Eurostat’s database the Household budget survey (HBS), national accounts and the harmonised index of consumer prices.,

Figure 1: Consumption expenditure of households on goods and services, EU, 2006 (1)(% of total household consumption expenditure)

Figure 2: Mean consumption expenditure of households by income, EU, 2005 (1)(PPS)

Figure 3: Mean consumption expenditure of households by type of household, EU, 2005 (1)(PPS)

Figure 4: Mean consumption expenditure of households by number of active people, EU,(PPS)

Main statistical findings

EU-27 final and actual household consumption recover from the crisis

In comparison to a drop of 4.6% in GDP in 2009, the worst year of the crisis, the impact of the financial and economic crisis on EU-27 household consumption was less marked, falling by 1.8 % that year. Actual individual consumption, a wider measure of the goods and services consumed by households, which notably also encompasses individual government consumption, fell even less (-1.0%) as government expenditure continued to grow by 2.0% in 2008 and 2009. Since then, households’ final and actual consumption grew by 1.0% in 2010 and by 0.3% and 0.1 % respectively in 2011, while growth in government consumption declined to 1.0% in 2010 and to 0.3% in 2011.

To better understand the focus on actual individual consumption for cross-country comparisons in the next section, on the left side, Figure 2 presents the shares of different final expenditure components, which have in fact been relatively stable over the past decade. The largest component, household final consumption, represented 56.5 % of GDP in 2011. When adding final consumption of non-profit institutions serving households (NPISH, 1.5% of GDP) and ‘individual’ government expenditure, such as public education and public healthcare (13.6 % of GDP) the result is households’ actual individual consumption (71.4% of GDP). After adding ‘collective’ government consumption (8.2% of GDP), covering items as administration, justice, defence or the police, the result is total final consumption expenditure, which accounted for 79.7% of EU-27 GDP in 2011.

In 2011, both EU-27 final consumption expenditure and actual individual consumption recovered from the crisis, at 18 000 and 21100 euros per capita respectively. While these figures are not presented in the graph below, the right side of Figure 2 shows that household expenditure is also above the respective level in 2008 in current prices with 14200 euros per capita. Only household consumption has still not fully recovered in volume terms, i.e when adjusting for increases in prices.

===Actual individual consumption in euros per capita varies significantly between countries but represents around 70% of GDP in most countries===

While GDP per capita is often considered as an indicator of a country’s living standard, it is actually the sum of all goods and services produced in that country. As highlighted in the 2009 ‘Report on the measurement of economic performance and social progress’ by Stiglitz, Sen and Fitoussi, actual individual consumption (AIC) per capita is an alternative indicator better suited to describe the material welfare situation of households as it takes account of widespread differences across countries in the shares of public financing for the provision of education and health services to individuals.

While the share of actual individual consumption in 2011 is close to the EU-27 average of 70% of GDP for most countries, Figure 3 shows that differences in the level of actual individual consumption per capita in euros are large, ranging from 35 000 euros in Luxembourg and 29600 euros in Denmark to 6 400 euros in Hungary in 2011 (respectively 3400 euros in Bulgaria and 4 200 euros in Romania based on last available data for 2010). However, this spread is more than halved when differences in purchasing power are taken into account.

In addition, the effects of the financial and economic crisis have varied significantly. The Baltic economies and Greece were the most severely affected, with loss of actual individual consumption (in volume terms) of 12 % to 15% between 2008 and 2011. While actual individual consumption started to recover in the Baltic countries in 2011, the contraction accentuated in Greece, in connection with the deepening recession and debt crisis, so that the losses between 2008 and 2011 increased to nearly 15%. In Romania, Hungary, Bulgaria, Ireland and Poland actual individual consumption also fell by between 5% and 9% from 2008 to 2011, while it expanded by between 5% and 8% in Luxembourg, Sweden and Poland. However, in 2011, the situation improved in most Member States, with Ireland, Portugal and Greece being the main exceptions.

===Rising shares of EU-27 household final expenditure were devoted to housing and energy, while furniture and maintenance were most affected by the crisis===

The reminder of this article uses data on detailed expenditure breakdowns to further analyse consumption trends. Figure 5 shows the composition of EU-27 consumption expenditure in 2011 (using COICOP 2 breakdowns).

EU-27 households spent 3 400 euros per capita on housing, water, electricity, gas and other fuels in 2011. This can be further split up (using COICOP 3 figures) into 1 700 euros for imputed and 600 euros for actual rentals for housing, 200 euros for maintenance and repair of the dwelling, 200 euros for water supply and miscellaneous services relating to the dwelling and 600 euros for electricity, gas and other fuels.

Together with the next largest components, transport (1 900 euros) and food and non-alcoholic beverages (1 800 euros), this already accounted for about 50% of total expenditure. The other half of households’ expenditure includes spending on recreation and culture (1 300 euros), restaurants and hotels (1 200 euros), furnishings, household equipment and routine maintenance of the house, (800 euros), clothing and footwear (800 euros), health (500 euros), alcoholic beverages, tobacco and narcotics (500 euros), communications (500 euros), education (400 euros) and miscellaneous goods and services (1 600 euros), which include e.g. expenses for personal care, social protection, insurance and financial services.

Looking at the composition of EU-27 household final consumption expenditure over time, Figure 6 suggests that the shares of the main consumption items changed only gradually over the past decade.

However, there are some medium-term trends, such as a rising share of expenditure on electricity, gas and other fuels, (imputed and actual) housing rents, water supply and other dwelling services and health, and falling shares for furnishings, clothing, recreation and communications. Some effect of the financial and economic crisis could notably be discerned in a drop in the shares of miscellaneous goods and services between 2007 and 2009, which include financial and insurance services and transport. On the other hand, the shares for food and non-alcoholic beverages, health, actual and imputed housing rentals and water supply and dwelling services seem to have increased between 2007 and 2009, which would be consistent with the fact that expenditure on basic needs tends to be more resilient than other consumption items in an economic recession.

Examination of the respective volume figures allows a more detailed analysis of the impact of the crisis. Focusing only on 2009 as the worst year, Figure 7 shows that housing rentals and related energy and service costs, as well as education, health, communications and food were less affected than total expenditure, while the most significant impact was on housing equipment, maintenance, clothing and leisure-related activities.

The impact of the crisis greatest in the Baltic countries and Greece

Turning to an analysis of country-specific data, this article can only highlight a few salient facts. Figure 8 shows that southern and eastern Member States generally spent a higher than average proportion on food and non-alcoholic beverages. Indeed, this share is largest in Latvia and Estonia, with 20%, but below 10% in Luxembourg, the United Kingdom and Austria. On the other hand, the combined share of actual and imputed housing rentals is generally lower in these countries, ranging from 7 % in Poland to 15 % in the Czech Republic, in comparison with up to 23% in Finland.

Figure 9 shows that expenditures in 2009 fell most in Latvia (-21.4%), Lithuania (-16.6%) and Estonia (-13.3%), while cumulative losses over 2008-2011 progressively increased to 15.3 % for Greece in connection with a deepening recession. Greece is also the country where consumption contracted most in 2011 (-7.1 %), while decreases in the United Kingdom, Slovakia, Ireland, Denmark and Spain were more moderate (between -0.8% and -0.3%) and consumption recovered in the other Member States. Data for Bulgaria, Spain, Lithuania and Romania for 2011 were not available when preparing this article.

Referring to changes between 2008 and 2011, Figure 10 shows that the impact of the crisis on different consumption categories varied significantly across countries. Indeed, even though the overall contraction in household consumption was of similar magnitudes in Lithuania (-15.5%), Greece (-15.3 %), Latvia (-15.3%) and Estonia (-12.6 %), Lithuania showed particularly severe contractions for miscellaneous goods and services (-27.7 %), transport (-26 %) and food (-21.6%), but significant increases for smaller categories such as communications (47.0%) and education (24.6%).

Latvia saw the largest drop in expenditure on education (-45.6%), clothing and footwear (-36.4%) and health (-26.6%), while household expenditure in Estonia fell most on education (-31 %), recreational activities (-27.7%) and miscellaneous goods and services (-25.6%). Finally, declines could be noted for all categories in Greece, but were sharpest for clothing (-28.6 %), transport (-37.5%), communications (-28.3%) and furnishings (-26.6%).

Data sources and availability

Information on consumption expenditure, according to the Classification of individual consumption by purpose, comes from three sources in the database section of Eurostat’s website:

the Household budget survey (HBS) - see living conditions and social protection;

National accounts (including GDP) - see annual national accounts (nama);

Harmonised index of consumer prices, see Prices (prc).

The first two sources provide information both on amounts and on the structure, whilst the last only provides a structure of expenditure. In fact, the HBS shows amounts per household and per adult equivalent in PPS, whilst the NA shows data in current prices and volumes, as well as price indices. Obviously, the three sources are related, but they do show some differences, due to the way the data are collected, differing definitions and the publishing timeliness.

As its name implies, the HBS is a survey which is run on a sample of households in the participating countries and collected, aggregated and published by Eurostat on an informal basis. In all the countries, sharing common accommodation and expenditures is a prerequisite for a group of persons to be considered a household. In addition, many countries include the share of a common budget in their definition of household. Big institutions, such as hospitals, hotels, institutes and prisons are excluded from this survey.

National accounts data are compiled through a variety of statistical sources; such as HBS, business surveys, foreign trade statistics and value-added tax statistics. NA also uses slightly different definitions. Final consumption expenditure of households on detailed COICOP levels is estimated according to the 'domestic' concept. It consists of expenditure on goods and services incurred by resident and non-resident households on the economic territory. On an aggregated level, national accounts also publish final consumption expenditure of households according to the 'national' concept, meaning it includes expenditure by resident households both on the economic territory and abroad (and excludes expenditure by non-resident households on the economic territory). The national concept of final consumption is used in the GDP expenditure approach.

Finally, in order to arrive at the structure of consumption expenditure, which is then used to compile the weights used for the estimation of the consumer price index, in many cases the harmonised index of consumer prices uses the information coming from the HBS which is adjusted by using other sources, such as the NA. It should be noted here that in the HICP, imputed rent is not accounted for while in the other two sources it is.

Another important difference comes from the timeliness in publication of the results. National accounts publish quarterly data on aggregate level and annual data for detailed COICOP levels, the HICP updates its weights annually, and although in many countries the HBS is run on an annual basis, in some, it is run on a five-year basis so Eurostat only collects, aggregates and publishes this information on a five year cycle, normally with a two-year time lag.

Now what are the pros and cons one has to consider in using each source? The HBS deals strictly with households and all the information is gathered directly from them. Besides information on consumption expenditure, there is also information on income, place of residence, and some characteristics of the reference person. There are some doubts on the accuracy, or at least the completeness, in reporting on what is considered as “sin consumption”, such as prostitution, illicit drugs, alcohol, and tobacco. This does not have an effect on the amounts reported for the other divisions of the COICOP. However, it does affect the structure of expenditure. Besides this, another handicap for this source is the frequency that it is collected and the timeliness with which it is published. Finally, since this survey is conducted based on a 'gentlemen’s agreement', no one is in a position to dictate stringent standards. Having said that, participating countries have taken huge steps to harmonise their methodology, resulting in high-quality results.

National accounts rely on several sources to estimate consumption expenditure, both from the demand and supply sides. Member States are legally obliged to transmit the data to Eurostat. Moreover, this information is published much more frequently and is more recent then the HBS. The major issue with this source is that, since it covers expenditure from a macro level, expenditure cannot be correlated with characteristics pertaining to different households.

Finally, the HICP tries to take into account and make good for the weaknesses in the previous two sources by using adjustment techniques to calculate the weights to be used in the estimation of the index. Moreover, it produces figures on an annual basis. The contentious issues related to this source may be that it produces only the structure and that it does not include imputed rent.

Table 5, which represents the structure of expenditure according to the different sources, highlights the similarities and the differences between them. Actually, in the national accounts, no structure is formally published but it can be easily compiled by taking the expenditure per COICOP division, divided by the total expenditure.

Context

Consumption is a key indicator of citizens’ wellbeing, with housing, energy, transport and food accounting for about half of total household expenditure. This article uses data on the development and structure of expenditure to identify trends over the past decade. For instance, the impact of the economic and financial crisis on actual individual consumption of households was relatively moderate, as rising government consumption counterbalanced at least partly a more significant contraction in household consumption.

While the Baltic economies suffered most in 2009, household spending continued to decline in Greece due to the deepening recession and the fall was sharpest in 2011. Despite some general trends in EU-27 data, detailed consumption patterns vary significantly between Member States and the impact of the crisis on specific expenditure categories was also quite varied.

Further Eurostat information

Publications

European system of accounts ESA 1995

Main tables

Consumption expenditure of private households (hbs), see

Mean consumption expenditure of private households (hbs_exp)

Structure of mean consumption expenditure (hbs_struc)

National accounts (including GDP) (t_na), see:

Annual national accounts (t_nama)

National accounts detailed breakdowns (by industry, by product, by consumption purpose) (t_nama_brk)

Final consumption expenditure of households by consumption purpose (COICOP) (t_nama_co)

Household expenditure per inhabitant, by category (tsdpc520)

Prices (prc), see

Harmonised indices of consumer prices (HICP) (prc_hicp)

HICP - Item weights (prc_hicp_inw)

Database

Consumption expenditure of private households (hbs), see:

Mean consumption expenditure of private households (hbs_exp)

Structure of mean consumption expenditure (hbs_struc)

National accounts (na), see:

Annual national accounts (nama),

National Accounts detailed breakdowns (by industry, by product, by consumption purpose) (nama_brk)

Final consumption expenditure of households by consumption purpose (COICOP) (nama_co)

Final consumption expenditure of households by consumption purpose - COICOP 2 digit - aggregates at current prices (nama_co2_c)

Final consumption expenditure of households by consumption purpose - COICOP 2 digit - volumes (nama_co2_k)

Final consumption expenditure of households by consumption purpose - COICOP 2 digit - price indices (nama_co2_p)

Final consumption expenditure of households by consumption purpose - COICOP 3 digit - aggregates at current prices (nama_co3_c)

Final consumption expenditure of households by consumption purpose - COICOP 3 digit - volumes (nama_co3_k)

Final consumption expenditure of households by consumption purpose - COICOP 3 digit - price indices (nama_co3_p)

Prices (prc), see: