GDP – don’t break out the champagne yet
Today’s GDP figures show growth of 1.1% in the second quarter of this year, nearly double the previous two quarters combined. This is great news if it can be sustained, but there’s some reasons for being cautious.
The first is that private consumption is only going to be sustained on the basis of renewed confidence about future prospects for the economy and that hasn’t happened. The Nationwide building society’s Consumer Confidence Index fell further in June, reaching its lowest point for a year. Only 29% of people thought that this was a good time for a major purchase (like a car or house), the lowest figure since December 2008.
The Nationwide’s figures for people’s confidence in the labour market are especially worrying. Only 28% of people think that there are many or some jobs available, compared with 61% who think that there are not many or few – for comparison, in May 2008, just before the major job losses began, the equivalent figures were 51% and 24%.
This backs up the results of a survey of employees by the Chartered Institute for Personnel and Development, which found that job satisfaction levels were at a record low. Two thirds of workers feared they would find it hard to get work if they lost their jobs and 18% thought they might lose their jobs. Standards of living had been hit – 29% said their standard of living had got worse over the last 3 months, compared with 10% who said it had got better – which goes a long way to explaining the depressed state of Nationwide’s Consumer Confidence Index.
There are other reasons for caution. First of all, today’s figures are a preliminary estimate and they are often revised down; compared with preliminary estimates, the average absolute revision three years later is 0.19% points – it would be nothing out of the ordinary if the quarter’s growth was eventually estimated at anywhere between 0.9% and 1.3%.
Secondly, construction contributed two fifths of the quarter’s growth and this is the first set of GDP estimates to use a new Monthly Business Survey for construction. The Office for National Statistics generally produces very high quality data, but it is possible that this may partly account for the increase.
By the way, the new survey throws further light on the mystery of the Chancellor’s strange observations on the GDP data. George Osborne said that the private sector contributed all but 0.1% of the growth and that this “put beyond doubt that it was right to begin acting on the deficit now.”
The construction data shows just how important the public sector has been – and remember that this is a sector that Mr Osborne includes in the private sector total:
- New private housing work is unchanged compared with the previous quarter and 8% lower than the same quarter in 2009;
- New public housing work is 13% higher than the previous quarter and 57% higher than the same quarter in 2009 (in fact, it is the highest since the third quarter of 1980);
- New infrastructure work (which will mainly be public sector) is 5% higher than the previous quarter and 35% higher than the same quarter in 2009;
- Public non-housing excluding infrastructure is 1% lower than the previous quarter but 36% higher than the same quarter in 2009;
- New private non-housing is 1% higher than the previous quarter but 15% higher than the same quarter in 2009;
- Public housing repair and maintenance is 3% higher than the previous quarter and 6% higher than the same quarter in 2009;
- Private housing repair and maintenance is 2% lower than the previous quarter and 12% lower than the same quarter in 2009;
- It isn’t possible to separate public and private non-housing repair and maintenance.
Now, remember my cautions about using a new set of data (but George Osborne should have remembered that too). And I should point out that these figures refer to the first quarter of 2010 (though the 2nd quarter figures are unlikely to be that different.)
But it is remarkable that the sector showing the strongest growth in the latest figures proves the exact opposite of the lesson the Chancellor drew. There have been a lot of political commentators recently telling us that Mr. Osborne has turned out to be a good deal cleverer than they expected; today’s efforts don’t exactly buttress their case.