Today the UK takes centre stage with its economic growth or Gross Domestic Product figures for the last quarter of 2012. After some weak numbers there is understandable nervousness ahead of the event based on the other economic statistics released covering that period. This led the National Institute for Economic and Social Research to offer this as its opinion.
Our monthly estimates of GDP suggest that output declined by 0.3 per cent in the three months ending in December
So not cheery news although there was something of an antidote yesterday afternoon when a rumour did the rounds of the financial markets that the number would be positive and perhaps 0.2%. The UK equity market seemed to catch onto this as it broke through the 6200 barrier and rallied by 67 points or 1.1%. But whilst 34 names are on the official list to know this number a day early (in addition to those compiling it) a rumour is just that and could have been a double-bluff.
Care is needed with these numbers
The UK produces its preliminary estimate of GDP growth first amongst the major nations which means that less time is available to check and collect data and information. Accordingly there is a higher risk of error and then revision. The orders is that around 45% of the data is available to which more data is added at the second estimate and extra checks are made on the third and (hopefully) final estimate when the numbers from expenditure and income are added to the output numbers. Just to be clear there are three ways of measuring GDP where output ( if you see GDP (o) that’s what they mean) is the one used by far the most.
In the credit crunch era this has proved to be somewhat dubious as research in the United States has shown that the income numbers have been a better and more accurate guide. We in the UK do our best to bury those numbers after Nigel Lawson thought they might confuse people when he was Chancellor of the Exchequer and requested that they be suppressed.
However the central point here is that the spot number presented in fact has an error range or confidence interval which nearly everyone will ignore!
It is not the future that is bright but the past!
Back on the 25th of October I discussed a way in which the calculation of GDP was being changed and concluded this.
we will record the same circumstance as giving a higher rate of economic growth than before
How? Let us look at the change.
The second is replacement of Retail Price Index (RPI) series with Consumer Price Index (CPI) series in forming the deflators
So if you have a given level of GDP and reduce your inflation reading, hey presto you have a higher level of real GDP. And as CPI is invariably lower than RPI that is exactly what has happened! At the stroke of a pen you might say or as the group Pilot put it.
Hey,hey it’s magic!
Well according to the US economist Sam Williamson such methodology has now been applied to the past too, back to 1948 in fact. Take a look at what he thinks has happened.
For the last 62 years the United Kingdom’s real GDP has grown at a rate of 2.43%.
Has been replaced by
The new story is that for the last 62 years the United Kingdom real GDP has grown at a rate of 2.68%.
As we slap ourselves on the back for such an improved performance there are casualties.
The new real GDP number for 1948 is 14% lower than it was
So when people tell you that the post-war period was grim it would appear that over 60 years later the statisticians have caught up! Actually I am teasing as this really is shameful as 1948 as been picked for what reason? Perhaps because the RPI started then,so for convenience rather than any new reality.
Oh and perhaps someone will explain how are series (CPI) which only began in 1996 can be used as far back as 1948….
The Royal Statistical Society has requested a formal reply on this from the Office for National Statistics. For my own part I did a spot check last night on the 1997 data and it does seem to confirm Mr. Williamson’s claims.
It turned out that the rumours of a positive number were a spoof or possibly a double-bluff from someone looking for buyers for their existing investments as here is the official statement.
GDP was estimated to have decreased by 0.3% in Q4 2012 compared with Q3 2012
And in spite of the likely media hype about the spot figure the more important number is below.
GDP was estimated to have been flat in Q4 2012, when compared with Q4 2011.
So we remain -in spite of the statistical manipulation- in a situation described thus by David Byrne and Talking Heads.
We’re on a road to nowhere
And the major factor this time pushing us downwards was this.
Output of the production industries was estimated to have decreased by 1.8% in Q4 2012 compared with Q3 2012
If we look into the detail of this we see that a lot of the fall here was apparently due to summer maintenance in North Sea Oilfields taking place in winter. Apparently the summer was so poor this winter that they missed it! Or something like that! If we move on from that there is more troubling news to my mind from manufacturing as it fell by 1.5% and the falls were across virtually the whole industry.
There was a little ripple of hope and relief for the UK’s embattled construction sector as output rose by 0.3% on the quarter but sadly that still means that it is down 11% on a year ago.
If we move from the headline number due to the possible errors that may need revision and look for perspective we see that a UK economy at 100 in 2009 was at 102.9 at the end of 2012. Suddenly a few points of a percentage either way matter much less because they would not particularly change an underlying message of slow grinding growth. If we add in our inflation performance we return to one of the themes with which I started this blog back in late 2009 which is stagflation. No wonder those in charge of UK economic policy such as the Bank of England have started to use the word counterfactual to describe the lack of real impact of all their monetary stimulus measures such as the £375 billion of Quantitatuve Easing. In my financial lexicon counterfactual is described as scaremongering to cover up failure.
Also I would like readers to remember that these numbers are poor in spite of the way that they have been “improved” ( in my lexicon this means fiddled or manipulated) which appears on the evidence to “improve” growth by 0.25%. The idea that we had more growth as we ran into the collapse of 2007/08 is frankly pathetic and shameful.
This leaves us with another problem which is that our employment and indeed unemployment numbers are telling a story which looks different again as is put here.
The latest headline indicators for the labour market in the three months to November continue to show resilience, in contrast to the weakness in GDP.
If we take the caveat that we are not comparing exactly like with like as the employment numbers are only up to November we see that they show a better picture.
Employment increased (90,000), unemployment fell (37,000) and hours increased (7.8 million) compared to the previous three month period……..while over the past year employment rose by 1.9 per cent (up 552,000).
Except of course we have the problem that is the falling level of real wages.
Total pay (including bonuses) rose by 1.5% compared with September to November 2011
So if we use the latest numbers we have a fall of between 1.2% (using CPI) and 1.6% (using RPI). So tucked in here is at least part of the answer whilst the quantity of labour is good particularly in the circumstances the price (real wages) is not.
Stagflation it is then.
Battersea Park Adventure Playground
One of the pleasures of South London is Battersea Park which I have enjoyed both as man and boy. Unfortunately things are going amiss as I described in the tweet copied below.
On one side of Battersea Park we have £6million flats selling like hot cakes on the other we close the adventure playground
In addition to the geographical juxtaposition of extreme wealth and apparent public poverty we now have a site which looks like something out of a police state. We have locked park gates (remember this is a public park supposedly open to all..) and new fences with police presence. As David Byrne put it so eloquently.
How did I get here?