Archive:Household consumption expenditure - background

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)

This article introduces household consumption expenditure in the European Union (EU), identifying the data sources, discussing the concepts and nomenclatures used and sketching the patterns which vary widely among EU Member States, 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, this includes expenditure on goods and services, the consumption of garden produce and rent for owner-occupied dwellings.

Data on consumption expenditure combine three sources in Eurostat’s database: the Household budget survey (HBS), national accounts and the harmonised index of consumer prices. They are organised according to the Classification of individual consumption by purpose (COICOP). A detailed analysis of recent national accounts data can be found in a statistical article on household consumption expenditure.

Patterns across the EU

Household consumption habits vary substantially among the EU Member States. Factors such as culture, income, weather, household composition, economic structure and degree of urbanisation can all have an impact on habits in each country.

National accounts data also reveal that a little over a fifth of total household consumption expenditure in the EU in 2006 was devoted to housing, water, electricity, gas and other housing fuels. Expenditure on transport and food and non-alcoholic beverages constitute the next two most important categories in the EU, at about the same level and together accounting for a little more than a quarter of total household consumption expenditure.

Household budget survey (HBS)

Combining national accounts with the Household budget survey allows a far more detailed breakdown of these aggregated consumption expenditure statistics.

The HBS shows that household expenditure devoted to each consumption category varied greatly among Member States in 2005. The highest proportion of the mean consumption expenditure of households (in PPS) spent on housing, water, electricity, gas and other fuels in 2005 was recorded in Sweden, attaining almost one third, about three times as high as in Malta where it reached almost one tenth. The proportion of household consumption spent on food and non-alcoholic beverages was highest in Member States where household incomes were lowest; in Romania such items accounted for almost half of the mean consumption expenditure of households, compared with somewhat less than 10 % in Luxembourg.

Household consumption expenditure was also reflected in certain broad socio-demographic patterns. The mean consumption expenditure of households whose head was aged 30 to 59 years old tended to be much higher than the equivalent expenditure of households whose head was either aged under 30 or over 60. In several Member States that joined the EU since 2004, however, average household consumption expenditure of households headed by a person aged under 30 was often much closer to the expenditure of households headed by someone of an older working age (30 to 59), and in Latvia and Romania it was even higher.

Households headed by self-employed or non-manual workers in industry and services in the EU had, on average, the highest mean consumption expenditure of about PPS 32 500 in 2005, with that of households headed by manual workers about 25 % lower.

Income-expenditure link

As may be expected, there was a strong link between household income and expenditure across the EU - the 20 % of households with the highest incomes spent an average of about two and three-quarters times more than the poorest 20 % of households in 2005. There was also a strong correlation between average household consumption expenditure, the size of households and the number of active persons in the household. Household consumption expenditure was highest in households with three or more adults with dependent children and lowest within single person households; households with three or more active people spent more than households with no active people. Nevertheless, in both cases the relationship was not linear: economies of scale (for example, sharing a flat or a car, heating a room, etc.) may, at least to some degree, explain why the expenditure of a single person is generally considerably more than half the expenditure of a couple.

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 surveys (HBSs) - see database

• 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 expenditure is what people, acting either individually or collectively, spend on goods and services to satisfy their needs and wants. A household’s economic well-being can be expressed in terms of its access to goods and services. The more that can be consumed, the higher the level of economic well-being, though the relationship between the two is not a linear one. Measuring consumption expenditure might, therefore, be a way of measuring economic well-being.

Studies of consumption investigate how and why society and individuals consume goods and services, and how this affects society and human relationships. Contemporary studies focus on meanings of goods and the role of consumption in identity making. Traditionally, consumption was seen as rather unimportant compared to production, and the political and economic issues surrounding it. However, with the development of a consumer society, increasing consumer power in the market place, the growth in marketing, advertising, sophisticated consumers, ethical consumption etc., it is recognised as central to modern life.

In national accounts, the final consumption expenditure of households is the biggest component of the expenditure approach to GDP. Its evolution allows an assessment of purchases made by households, reflecting changes in wages and other incomes, but also in employment and in savings behaviour.

See also

• Consumer prices - inflation and comparative price levels
• HICP - household consumption patterns
• Archive:Household consumption expenditure - national accounts

Further Eurostat information

Data visualisation

• Inflation dashboard (visualisation tool)

Publications

• Analysis of EU-27 household final consumption expenditure — Baltic countries and Greece still suffering most from the economic and financial crisis - Statistics in Focus 2/2013
• Regional discrepancies in private household income continue to narrow in 2008 - Statistics in Focus 59/2011
• European system of accounts ESA 1995

Main tables

• 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

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 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:

Harmonised indices of consumer prices (HICP) (prc_hicp)

HICP - Item weights (prc_hicp_inw)

Methodology / Metadata

• Annual national accounts (ESMS metadata file — nama_esms)
• Consumption expenditure of private households (ESMS metadata file — hbs_esms)
• Harmonised indices of consumer prices (HICP) (ESMS metadata file — prc_hicp_esms)