The Saturday Economist johnashcroft.co.uk GDP falls by 0.7% in second quarter Saturday, 28 July, 2012Output fell by 0.7% in the OTHER NEWSsecond quarter according Constructionto the preliminary estimate Construction output fell byfrom the ONS. 10% compared to Q2 2011. ------------------------------- ManufacturingConsensus estimates were for a Manufacturing output fell byfall of 0.2% already a set back 3%to The Chancellor’s policy forgrowth. ------------------------------- Service Sector growthA reduction in construction output Service sector growthdown 10% year on year plus a drop increased by just 0.7%in manufacturing output of some ------------------------------3% compounded the problem. Government spending - the highest growth sector withRain and the Queen’s jubilee week output up by 1.3% year onend take the blame. Euroland year.also takes some flak but the realproblem is domestic demand. Construction output down by 10% -------------------------------- year on year. PLUS Where did the job growth come from?Is the Chancellor really in control?Closing : FTSE : 5,627; 10 Year Gilts 1.54%, Oil Brent Crude $106.47; Gold $1,613; $ 1.575; € 1.278
The Saturday Economist johnashcroft.co.ukGDP figures shock policy makers Saturday, 28 July, 2012The prelimnary estimate for Service sector output wasGDP in the second quarter up by 0.7%. Distribution,surprised all analysts. hotels, restaurants,The consensus forecast was pubs, clubs, transport,for a fall of 0.2% quarter on communication were prettyquarter and year on year. flat.The NIESR monthly GDP Bright spots in the gloomestimate was for a slightly were business and financialhigher fall of 0.3%. services up by 0.8%.Construction output was Government and otherdown by almost 10% year services - the higheston year. Manufacturing growth sector up by 1.3%.output fell by 3%,extractives (mining) fell Overall GDP fell by 0.8%by 12%. Despite a surge compared to the second The promise of a classic “A classic recoveryin utilities growth of 5%, quarter of 2011. The trend recovery from the depths ofoverall production (IOP) is heading in the wrong hits the skids as policy 2009 has been dashed by anwas down by 3.2%. direction. ill conceived domestic policy. founders”
The Saturday Economist johnashcroft.co.ukSo what happened to construction? Saturday, 28 July, 2012Construction output fell by into the first quarter of 2013 by a significant9.7% compared to the second unless activity increases shortfall in publicquarter of 2011. significantly. sector activity including housing,There has been a great deal It is worth bearing in mind infrastructure andof scepticism surrounding the overall weighting of other investmentthe data on the construction construction in GDP is just 68 projects ( downsector, not least the strength / 1000, less than 7% of total 20%).of the recovery in 2011 when output. In a recession everygrowth appeared to be up by little helps including activity Private sectorover 12% in the third quarter in housing and infrastructure. investment inof 2010. commercial and One third of construction industrial propertyNevertheless, the latest activity is repair and is steady compareddata suggest output fell maintenance, the balance in to 2011.in the second quarter by new work including housing,10% year on year. This in infrastructure, commercial, The prospects foreffect means construction industrial and government the rest of the yearoutput has returned to the investment projects. and into the firstlevels of recession in 2009. quarter of 2013 areFurthermore, the 10% In the second quarter, the for the 10% drop toshortfall is likely to persist drop in output is explained continue.
The Saturday Economist johnashcroft.co.ukDoes the GDP drop make sense? Saturday, 28 July, 2012For many analysts, the Since the end of 2011, thefall in GDP output does economy appears to havenot correlate with the slowed but the claimanttrends in employment and count does not reflect theunemployment. slow down.The claimaint count for Indeed the unemplpymentexample provides a very data is more consistentgood co-incident index of with an economy growinggrowth and recession. at a modest rate of around 1%.In 2009, the quarterlychange in unemployment So how do we explainincreased by over 250,000 the separation of the dataas GDP fell by over 6%. series? Some argue that There are some who assume Either way, the GDP data labour hoarding explains the separation reflects a lower does not look correct. But ifAs the economy recovered in part the difference but level of productivity in the negative growth means morein 2010 the claimant this is not reflected in the economy as a whole. Perhaps jobs in the new paradigm,count began to fall before data since new jobs are explained by growth in the why worry about it overthe recovery petered out being created in the private self employed sector. much, wait for the inevitablethrough 2011. sector. revisions to the information.
The Saturday Economist johnashcroft.co.ukWhere did the jobs come from? Saturday, 28 July, 2012Over the last two years Wholesale, retailapproximately 800, 000 and distribution,new jobs have been created accomodation,in the private sector. hotels and the information sectorThe public sector has shed particularly strong.jobs in administration andeducation. Financial, professional,The construction sector sciences,has also shed jobs with the healthcare, arts,labour force down by 2%, and other servicesa drop of 40,000. have also shown growth.Manufacturingemployment has also Two thirds of the new jobs “Overall employment Is this evidence of re have been employee jobscontinued to fall, in line growth has been in balancing, of course not. the balance have been inwith long term trends. self employment. the service sector”. Economic growth and job creation is a functionSo where have the new of domestic demand andjobs come from? service sector growth.
The Saturday Economist johnashcroft.co.ukWhat happened in the world this week Saturday, 28 July, 2012 US growth in the second Speaking at a conference Ten year bond rates hit quarter up by 2.1% year in London, Mario Draghi 7.75% in Madrid prior on year. said that the ECB would to the Draghi statement. do “whatever it takes” News - the reality of a to support the single bail out of the Spanish currency. “Believe me, it economy could cost €385 will be enough,” he said billion. So what! emphatically.US Growth slowsGross domestic product, “The euro is like agrew at a weak 1.5% bumblebee. This isannual rate, the Commerce Euro hopes rally : a mystery of natureDepartment said Friday -- a Mario Draghi - the because it shouldn’tsharp slowing from the first President of the Europeanquarter’s 2% pace and the fly but it does” Mario Central Bank triggered afourth quarter’s 4.1%. rally on global markets Draghi. after hinting that it couldOK but as we overlay our intervene to quell soaring Just as well as Spainpreferred year on year borrowing costs in the entered the ring with therate growth chart, the US eurozone periphery. Matador’s collecting bowl.recovery looks pretty solid.
The Saturday Economist johnashcroft.co.ukMarkets : FTSE 5,627 : DOW 13,076 : Nasdaq 2,950 : DAX 6,600 Saturday, 28 July, 2012 FTSE 5,627 £:$ 1.575 DJIA 13,076 £:€ 1.278 NASDAQ 2,950 $:€ 1.232 DAX 6,600 $:¥ 78.74 CAC 3,250 Base Rate 0.50% Nikkei 10 yr UK 1.54% Hang Seng 19,250 10 yr US 1.54% 10 yr Euro 1.43% Brent Crude $ 106.47 Copper 343 WTI Crude $ 90.26 Corn 798 Gold $ 1.613.4 Wheat 898 Silver 5000 $ 2,743.1 Platinum $ 1,411.5
The Saturday Economist johnashcroft.co.ukGrowth Inflation Unemployment Government BorrowingGDP in the second quarter Inflation CPI basis fell to Claimant count in June In the first four months tofell by 0.8% year on year as 2.4% in June. Inflation RPI increased slightly by 6,000 to June, Government was upthe recovery of 2010 petered and RPIX fell to 2.8% from a level of just over 1.6 million by £4.5 billion. Borrowingout in 2011. 3.1%. and a rate of 4.9%. is likely to exceed the levels achieved in 2011/12.Growth in Q1 fell by 02%. In Manufacturing price inflation The LFS count fell slightly2011 UK growth was up by fell to 2.3% in June, latest (three months to May) to a0.8% and 1.8% in 2010 . earnings up by 1.8% in May. level of 2.58 million. 8.1%
The Saturday Economist johnashcroft.co.ukIndicator Period Latest Notes SourceInﬂation CPI June 2.4% ONSInﬂation RPI June 2.8% .. ONSInﬂation RPIX June 2.8% .. ONSEarnings May 1.8% ONSRetail Sales volume June 1.6% ONSRetail Sales value June 1.8% ONSUnemployment May 2.58 LFS Million trailing 3 months ONSUnemployment % May 8.1% LFS % trailing 3 month ONSClaimant count June 1.604m Million ONSPPIs output June 2.3% Manufacturing prices (output) ONSPPIs input June -2.3% Manufacturing prices ( input) ONSGDP growth Q2 2012 -0.8% year on year comparison ONSManufacturing May -1.7% year on year growth ONS
The Saturday Economist johnashcroft.co.ukThe Saturday Economist is a round up of the The publication of this document should not beweek’s economics news for the UK published construed as the giving of investment advice.on the web site johnashcroft.co.uk. Forecasting is subject to frequent revisionThe information is also available as a PDF Please remember we are forecasting the outputdownload. of the Office for National Statistics which may, of itself, be subject to revision.The information was originally published inshort form in the Sunday Times and Croissants All views expressed in the Saturday Economistweekly blog post and has been expanded are my own. Information is intended to providefollowing requests for more information. a general outline of the subjects covered. It should neither be regarded as comprehensiveThe material in the Saturday Economist is nor sufficient for making decisions, nor shouldbased upon information which we consider to it be used in place of professional advice.be reliable but we do not represent that it isaccurate or complete and it should not be relied Neither the Saturday Economist or anyupon as such. We accept no liability for errors, representative accept any responsibility for anyor omissions of opinion or fact. loss arising from any action taken or not taken by anyone using this material.In particular, no reliance should be placed on Data adapted from the Office forthe comments or trends in financial markets. John K Ashcroft National Statistics licensed under Open Government Licence .v.1.0.