12th September 2012
The UK economy is something of an enigma at the moment as diferent measures of it appear to be giving us different signals. By the conventional route of just looking at Gross Domestic Product numbers she is firmly in recession as the last three quarterly readings have gone -0.4%,-0.3% and then -0.5%. However the unemployment and employment numbers have presented themselves in a more optimistic fashion. We have certainly seen a very different picture to when the economist David Blanchflower told us that the UK would have a peak level of unemployment "much higher" than three million.
So which is right or neither? Sadly we can never be absolutely sure as economic statistics are not as reliable as some would have you believe but we can learn from looking at the overall picture and get a much better idea of the state of play. My contention has been that the UK is in more of a depression where economic growth flatlines for a considerable period rather than in a recession where it is falling quickly. This has received some supporting evidence over the past few days.
Monthly GDP analysis
On Friday we received the latest data on monthly GDP from the National Institute for Economic and Social Research: "Our monthly estimates of GDP suggest that output grew by 0.2 per cent in the three months ending in August after growth of 0.3 per cent in the three months ending in July 2012."
So hardly a surge but it is better and it is at least some growth which the NIESR expects to continue:
"While we expect the economy to continue to expand, it will take more robust rates of growth than we have recently seen to close the UK's large negative output gap."
What they mean by "output gap" is that the UK economy remains at around 4% lower than its pre-crisis peak. This feeds into the potential economic depression argument as we are now over four years into this crisis and even in what were considered past serious declines such as 1973-76 0r 1979-83 we were by now in positive territory.
These monthly numbers are in fact also better than what the NIESR told us previously. It may have slipped their mind to point it our but they previously told us that the three months to July saw a fall of 0.2% so they have a 0.5% improvement on their initial release.
The headline writers got some licence to declare Happy Christmas (War Is Over) when the numbers below were produced:
"(Industrial) Production rose by 2.9 per cent between June 2012 and July 2012, with manufacturing rising by 3.2 per cent."
However a more sober and reasoned analysis would be based on this:
"The seasonally adjusted Index of Production fell by 0.8 per cent in July 2012 compared with July 2011….The seasonally adjusted Index of Manufacturing fell by 0.5 per cent in July 2012 compared with July 2011"
So as the headline writers move from the despair headlines of the June numbers to the triumphant July ones the reality is that we are struggling. Added to this if we look at the underlying numbers we see industrial production is at 100.7 where 2009 =100, so no real change at all. Manufacturing is better at 105.7 but over 3 years that is edging forwards rather than the hoped for growth.
UK trade figures
It would appear that my dictum that monthly trade figures are so inaccurate as to be virtually useless is not generally followed. We followed the same route from despair (June) to relative triumph (July) only yesterday. But if we look behind the headlines to the trends we see this:
"Excluding oil and erratic items, the volume of exports was 0.9 per cent higher in the three months ending July 2012 compared with the preceding three months. The volume of imports fell 0.8 per cent over the same period."
So not much happening there and even over a three month period it is necessary to add as far as we can tell as trade figures are still not that reliable even over three months. It all looks rather stagnant. However we see in the detail that we are doing much better outside the European Union-just like Portugal's numbers I discussed yesterday- as our non-EU exports rose by 4.3% over the latest three months compared to an overall rate of 0.9%.
Today's employment figures
These operate in some respects as a case for the defence of the UK economy as shown below.
"The employment rate for those aged from 16 to 64 was 71.2 per cent, up 0.5 on the quarter. There were 29.56 million people in employment aged 16 and over, up 236,000 on the quarter."
And if we look deeper into the good news we find some more good news!
"This is the highest figure since the three months to April 2009…… (and this is) the largest quarterly increase since the three months to July 2010."
So far so good as we review a super-powerful UK employment situation? To fully understand the issue we need to add some nuance and we can do some of this by analysing the situation between part and full-time work since the credit crunch began in spring 2008:
the number of people in full-time employment fell by 640,000
the number of people in part-time employment increased by 628,000
So there has plainly been a shift to part-time work which takes some of the gloss off the numbers above. Also there has been a shift towards self-employment which rose by 52,000 in the latest numbers to 4.22 million. Combining these two trends has probably impacted on another nuance to our numbers.
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