Today sees some important data for the UK but before that we get some numbers which will be the priority of the Bank of England. This matters as several members of the Monetary Policy Committee will be speaking to Parliament this afternoon. They will already be unsettled by the recent positive data and also the rally in the UK Pound to above US $1.34 and may be shaken by this from the Halifax.
House prices declined by 0.2% between July and August.
They may fear that another 17.8% fall is on the immediate horizon to fulfil the pre Brexit referendum forecast of former Chancellor George Osborne and thereby conclude that a sledgehammer squared is now required. if so they may ignore this.
This modest decrease was the smallest of the four monthly falls so far this year. The quarter on quarter change is a more reliable indicator of the underlying trend.
Okay and the quarterly picture is.
House prices in the three months to August were 0.7% higher than in the previous three months (March-May)
So still some growth here albeit slower than before which is no great surprise as we saw buy to let activity pushed earlier in the year because of the April Stamp Duty changes. Indeed the annual picture shows house price rising at around treble the rate of wage growth.
Prices in the three months to August were 6.9% higher than in the same three months a year earlier. This was down from 8.4% in July, continuing the downward trend since March when the annual rate reached 10.0%. August’s 6.9% is the lowest yearly growth rate since October 2013 (6.9%).
So if we stop and take stock we see that the main player so far this year for house price growth was in fact the Stamp Duty change. Also we see that house prices have in this latest house price boom moved from around 4.5 times earning to more like 5.5 times in response to the Bank of England Funding for Lending Scheme according to the Halifax. Meanwhile if we use the monthly average earnings series we see that it has the average wage at £26,000 meaning that the standardised average price of £213,930 is some 8.2 times it.
Today’s numbers which represent output in July are in the phase where the Markit business survey told us that the leave referendum result had a bad effect.
the 41-month low of 48.3 posted in July following the EU referendum.
It will be interesting to see how this is reflected in the official figures as they do not always coincide by any means. However I wish to look at a more fundamental level as I think that manufacturing is important and therefore disagree with the thoughts of John Kay of the Financial Times.
Manufacturing fetishism – the idea that manufacturing is the central economic activity and everything else is somehow subordinate – is deeply ingrained in human thinking……….From these primitive times, we have inherited the notion of a hierarchy of needs in which food and shelter rank ahead of chartered accountancy and cosmetic surgery. Along with the hierarchy of household needs comes a perception of a hierarchy of importance for productive activities – agriculture, primary resources and basic manufacturing rank ahead of hairdressing and television programming.
With respect to chartered accountants and cosmetic surgeons I do think that food and shelter are more important than them. John has plainly missed a career as a central banker when he would be vulnerable to his own ” I cannot eat an I-Pad” moment.
These days if we look at the financial sector the statement below changes in tone and emphasis.
As economies passed beyond the basic and all-consuming requests for food, fuel and shelter, rewards became divorced from the place activities enjoyed in the hierarchy of needs.
Many would regard that as a problem as is the issue he champions below.
Those who are lucky enough to have possess these rare talents or occupy positions of authority have often felt embarrassed by earning more than those who work to satisfy more basic elements in the hierarchy of needs.
If you find someone like that please let me know as they are a rare beast indeed! Today’s news on the Southern Health scandal reminds us that those who occupy positions of authority seem to have missed the embarrassment gene.
Where John is on better ground is that “industrial strategies” by different governments often try to occupy the same piece of ground which is why there is so much overproduction of steel. Food for thought as the UK apparently heads for its own industrial strategy.
The Credit Crunch
Even before the credit crunch the UK was seeing a decline in both production and manufacturing.
In 1997, the share of nominal GVA accounted for by production in the UK was 21.7%, around the middle of the range relative to the other economies. By 2014, the UK had become relatively less reliant on production, as its share fell to 14.2% of nominal GVA………..The same trend was observed in manufacturing, where the share of nominal GVA fell from 17.1% in 1997 to 10.2% in 2014.
The credit crunch made this worse.
In the 3 months to July 2016, production and manufacturing were 7.6% and 5.2% respectively below their level reached in the pre-downturn GDP peak in Quarter 1 (Jan to Mar) 2008.
These were good in the circumstances for production.
0.1% increase in total production in July, driven by growth in mining & quarrying (+4.7%)…..In July 2016, total production output was estimated to have increased by 2.1% compared with July 2015.
However the Markit business survey has had something of a victory with the manufacturing numbers.
0.9% fall in manufacturing in July…..Manufacturing was estimated to have increased by 0.8% over the same period ( a year)
The fall was driven by a sector which has been erratic so far in 2016 as regular readers will recall.
with the largest contribution (to the fall) from pharmaceuticals
Output in that sector fell by 5.6% on the month and continues a pattern which is almost impossible to discern. On a more positive side was the motor industry.
The largest contribution within this sub-sector came from the manufacture of motor vehicles, trailers & semi-trailers, which increased by 9.0% and contributed 0.5 percentage points to total production. This was the fifth consecutive increase on a year ago.
We find that one more time the media pack are clustered around something of minor importance and missing a much larger issue. What I mean is the impact of the leave vote on manufacturing when in fact if the Markit business survey continues to be on form then it did not change things much if at all. Going forwards we will see a more complex picture as the initial price competitiveness ch-ch-changes meet higher costs.
In July 2016 the manufacturing industry experienced inflation in terms of the prices manufacturers pay for materials and fuels used in the production process (input prices) and the prices they charge for the goods they produce (output prices).
Meanwhile the whole manufacturing and production issue is a long-term one of decline. Some of it we cannot help unless we wish to drive wages to well below the UK minimum wage. Therefore we need a strategy for higher value products in my opinion and one bit is easy and the other is hard. With the current level of cheap borrowing costs for the government we are in a really bad state if we cannot find projects to encourage. But the truth is that longer-term growth relies much more on issues like education and creating a positive environment for innovation and invention than the fantasies and fads of politicians.
Meanwhile it was hard not to have a wry smile at this released with Germanic efficiency earlier today. Imagine if we had released this.
In July 2016,production in industry was down by 1.5% from the previous month on a price, seasonally and working day adjusted basis according to provisional data of the Federal Statistical Office (Destatis)…….. Within industry, the production of capital goods decreased by 3.6% and the production of consumer goods by 2.6%.
If only German had a word to cover this……Still we can provide some musical accompaniment.
The work force is disgusted downs tools and walks
Innocence is injured experience just talks
Everyone seeks damages and everyone agrees
That these are ‘classic symptoms of a monetary squeeze’
On ITV and BBC they talk about the curse
Philosophy is useless theology is worse
History boils over there’s an economics freeze
Sociologists invent words that mean ‘Industrial Disease’