Same old story: Households having to run down savings and calling a halt to deleveraging
For 2015Q1 GDP growth is now estimated at 0.4% (revised up from 0.3%). Growth was last lower than this in 2012 (Q4 when it was -0.4%), at the height of worries about the double dip, and with the Chancellor poised to reign in his austerity policies.
While some of this weakness may be driven by atypically slow growth in business services (perhaps in the wake of uncertainties ahead of the election), construction and production show the weakest growth for two years. The one area of vigour on the quarter is ‘distribution, hotels and restaurants’, which grew by 1.1 per cent (though was actually down on an even stronger 1.4% in 2014Q4). According to the corresponding expenditure figures, household consumption was up 0.9 per cent on the quarter and 3.4 per cent on the year – the latter the strongest growth since before the crisis. (Though NB these are volume figures, value figures were much weaker into the latest quarter, but held up on the year.)
In parallel growth in household income has been stronger as earnings growth has come off the floor, with for example four quarter growth in wages and salaries of 5.5 per cent last higher before the crisis (though the latest figures are exaggerated by the exceptionally low figures this time last year).
But the sum of the parts of years of unprecedentedly low wage increases set against ongoing rises in consumption has meant that the saving ratio (that measures the difference between spending and income) has steadily shrunk. In 2015Q1 the saving ratio was 4.9 per cent, down from 5.9 per cent in 2014Q4, and the lowest figure since the crisis erupted in 2008.
Household saving and debt
In parallel household deleveraging appears to have stalled (in gold), and debts as a share of income rising again into the latest quarter (see fuller discussion here).
The suggestion is that even the diminished gains in the economy over the past year are barely affordable to households struggling after years of low earnings (and others pose similar questions of the current account/balance of trade position). This is not how it was meant to be.
— TUC Media Team (@TUCnews) June 30, 2015