Friday, 26 October 2012

Brief notes on the quarterly figures

On the 1% growth figure, I heartily recommend Duncan Weldon's breakdown of the detail, as ever. For my part, I want to highlight a few thoughts on the question of these quarterly growth numbers:

First, when we talk about bank holidays reducing / displacing growth by some percentage (or fraction thereof), we aren't (substantially) talking about GDP growth in the sense of productivity increases, but rather a change in the level of GDP in that specific year, because of a social choice to work one less day, or an influx of cash associated with the olympics, and so on. In one case, the discussion has focused on displacement of GDP activity between two quarters, one of which had negative growth, the other positive.

In fact, many kinds of productivity increase happen irrespective as to anything else. If the US adopts a particular way of organising its workforce which increases efficiency by 10%, there's no barrier to that information being transmitted and those practices being implemented here, even if we did nothing to develop them. Similarly, changes to accommodate the digital market and reduce the production of physical media might produce efficiency gains without a substantial investment being required upfront.

In this way, the relationship between growth and the many details under discussion is not always absolute. It's always worth keeping the difference between permanent improvements in productivity and mere differences in output in mind.

Secondly, when we consider core components of GDP, net exports / imports are contingent on demand in our major trade partners, and their growth, Government spending is set to dip more rapidly as time passes, consumer spending is constrained by the continued deterioration in real wages and very high household debt, and investment is reliant on expectations of future demand and / or Government money. Even if low demand depresses prices, high energy and food prices, which are substantial to households, and high household debt will persist.

When you combine all of these facts, it is very difficult to see a strong recovery. The overarching question is: where would it come from?

The core measure that will decide both the 2015 election, and our economic prospects will be 'real wages'.


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