Since the use of inputs is subject to cyclical factors, economic activities tend to
fluctuate over the business cycle. As a consequence, TFP estimates exhibit procyclical
behaviour and need to be adjusted for capacity utilisation (Hulten, 2000). For instance,
downturn periods in demand are characterized by excess capacity whereas during upturn
periods production capacities are fully utilised. Hence, TFP estimates could be biased if
capacity utilisation is overlooked in productivity analysis. In addition, procyclical fluctuations
of TFP growth are likely to occult some information about the movements in the long-run
components and conceal some significant breaks in the time trend (Hulten, 2000).