A solid day for the UK economy or another trade disaster?

Today has opened with some positive news for the UK economy. The opening salvo was fired just after midnight by the British Retail Consortium.

In September, UK retail sales increased by 1.9% on a like-for-like basis from September 2016, when they had increased 0.4% from the preceding year……..On a total basis, sales rose 2.3% in September, against a growth of 1.3% in September 2016. This is above the 3-month and 12-month averages of 2.1% and 1.7% respectively.

So we have had 2 months now of better news on this indicator although it is a far from perfect guide to the official data series mostly because it combines both volumes and prices as hinted below.

September saw a second consecutive month of relatively good sales growth which should indicate welcome news for retailers and the economy alike. Looking beneath the surface though, we see that much of this growth is being driven by price increases filtering through, particularly in food and clothing, which were the highest performing product categories for the month.

Anyway for all the talk of price increases if you look at the figures they cannot have been that high and we have also got a small bit of good news on that front. From the BBC.

Car insurance premiums have dipped for the first time in more than three years, but the respite for drivers will be short-lived, analysis suggests.

Prices fell by 1%, or £9, in the third quarter of the year compared with the previous three months, according to price comparison website Confused.com.

Tourism

The lower value of the UK Pound £ seems to have given the UK economy something of a boost as well.

Tourism is booming in the UK with nearly 40 million overseas people expected to have visited the country during 2017 – a record figure.

Tourist promotion agency VisitBritain forecasts overseas trips to the UK will increase 6% to 39.7 million with spending up 14% to £25.7bn this year.

Also we seem to be holidaying more at home ourselves.

Britons are also holidaying at home in record numbers.

British Tourist Authority chairman Steve Ridgway said tourism was worth £127bn annually to the economy……From January to June this year, domestic overnight holidays in England rose 7% to a record 20.4 million with visitors spending £4.6bn – a rise of 17% and another record.

Over time this should give a boost to the UK trade figures which feel like they have been in deficit since time began! Especially if numbers like the one below continue.

Spending on UK debit cards overseas was down nearly 13% in August compared with the same month in 2016.

Production

If we move to this morning’s official data series we see that production is in fact positive.

In August 2017, total production was estimated to have increased by 0.2% compared with July 2017………In the three months to August 2017, the Index of Production was estimated to have increased by 0.9%……Total production output for August 2017 compared with August 2016 increased by 1.6%.

It is being held back by North Sea Oil & Gas output.

The fall of 2.0% in mining and quarrying was due mainly to oil and gas extraction, which fell by 2.1%. This was largely due to maintenance during August 2017.

The maintenance season is complex is we had a good June followed by weaker months so we do not know if this is part of the long-term decline in the area or simply the ebb and flow of the summer maintenance schedule.

Tucked away in the revisions was some good news as new data sources raised the index for the second quarter of 2017 from 101.6 to 102.1. We also saw a continuing of the trend towards services as production’s weighting in the UK economy fell from 14.65% to 13.95% or another example of the trend is your friend.

Manufacturing

This was the bright spot in the production data set with it rising by 0.4% on a monthly basis and by the amount below on an annual one.

with manufacturing providing the largest upward contribution, increasing by 2.8%

We actually beat France (2.7%) on a year on year and monthly basis which poses food for thought for the surveys telling us it was doing “far,far better ” as David Byrne would say. A driver of this is shown below and the numbers are on a three-monthly basis.

other manufacturing and repair provided the largest contribution, rising by 3.8%, due mainly to an increase of 13.1% in repair and maintenance of aircraft and spacecraft.

We are repairing spacecraft, who knew? If we look at the pattern we see that the official data seems to be catching up with what had previously been much more optimistic survey data from the CBI and the Markit business surveys.

Here is the overall credit crunch era situation which is now a little better than we thought before due to revisions and the recent manufacturing growth.

both production and manufacturing output have risen but remain below their level reached in the pre-downturn gross domestic product (GDP) peak in Quarter 1 (Jan to Mar) 2008, by 6.9% and 3.0% respectively in the three months to August 2017.

Construction

There were even some better numbers from this sector.

Construction output grew 0.6% month-on-month in August 2017, predominantly driven by a 1.7% rise in all new work……Compared with August 2016, construction output grew 3.5%

However I have warned time and time again about this data set and tucked away in the detail was a clear vindication of my scepticism.

The annual growth rate for 2016 has been revised from 2.4% to 3.8% and the leading contribution to this increase is infrastructure, which itself has been revised from negative 9.2% to negative 3.2%.

The ch-ch-changes are far too high for this series to be taken that seriously and this is far from the first time that this has happened.

Trade

This invariably brings bad news as here we go again.

Between the three months to May 2017 and the three months to August 2017, the total UK trade (goods and services) excluding erratic commodities deficit widened by £2.9 billion to £10.8 billion.

The bit that has me bothered about this series apart from its “not a national statistic” basis is this when we have reports from elsewhere that exporting is doing well as we have seen earlier today from the manufacturing and tourism news.

total trade (goods and services) exports decreased by 1.4% (£2.1 billion) ( in the latest 3 months).

Also it is hard to have much faith in primary income and investment position data which has been revised enormously especially in the latter case. I know we have got used to large numbers but a change of £500 billion?

The trade figures themselves have been less affected but surely the tuition fees change was known and should have been anticipated?

The biggest revision is in 2012 (£4.0 billion), with the inclusion of tuition fees having the greatest impact, followed by the inclusion of drugs data into the estimates of illegal activities.

Comment

Let us start with the good news which is that the data in the last 24 hours for the UK economy has been broadly positive. This is especially true if we compare it with the REM style “end of the world as we know it” which manifests itself in so much of the media. Also it is good that the UK Office for National Statistics has a policy of reviewing and trying to improve its data.

The bad news is that some of the large revisions lately bring into question the whole procedure. I mentioned last week the large upwards revision in UK savings which changed the picture substantially there which was followed by unit on labour costs being estimated as growing annually by 1.6% and then 2.4%. We now look at the construction sector which has given good news today and the balance of payments bad news. Both however have seen such large revisions that the true picture could be very different.

It is hard to believe that even those in the highest Ivory Towers could have any faith in nominal GDP targeting after the revisions but it pops up with regularity.

 

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15 thoughts on “A solid day for the UK economy or another trade disaster?

      • Carney has a portfolio of excuses not to raise interest rates, he will be selecting a few in his next speech as to why he cannot raise rates in December, that leaves the deterioration in the Brexit talks next year to cause further anxiety in the financial markets which will be used as the excuse for not increasing rates (by exactly the amount he cut them last year – a quarter point) until possibly the end of 2018 if at all.

  1. It is just another day examining why this country has gone down the pan. We have tried devaluation (compared with the likes of Germany and Japan, so we now attract those looking for cheap holidays (like Egypt and Tunisia did until recently) and have staycations, so we can all work in the tourism industry for minimum pay. All these “experienced” people who led us over a cliff in 2008 and the printing of money habve loed to a fake economy of high house prices and low productivity which even the OBTR now admits http://www.bbc.co.uk/news/business-41564851 We have just suffered a lost decade and if that Twitter graph of how OBR productivity gains were so wrong, is right, then we really are in trouble.

    We need to face up to our failures as a country, reward skills, effort and risk taking and tax unproductive assets, otherwise we will just continue our decline.

    • Good point Dave, as if the policy of endless devaluation was the secret of economic success everyone would be doing it. After all why bother to get up in the morning and go to work or take the risk of starting a business if all you had to do was print money every day to buy whatever you wanted?

      If it worked, Zimbabwe would be the most successful economy in the world, it isn’t but that doesn’t prevent the experts at the Bank of England telling us every time they devalue the pound that it will boost exporters and stimulate the economy and noone in the mainstream media ever calls them out on it..

  2. The problem with these figures is that they are both short term and potentially very inaccurate as you have said on many occasions. In the light of this what reasonable conclusions could be drawn from these statistics? The answer is none; they tell us very little.

    You cannot say that the conclusion is broadly positive when you have undermined the very basis for reaching that conclusion.

    The other point is that this is not merely an issue of the quality of the statistics; it is, to my mind, and issue of whether you can sensibly use such short term information to make any sensible decisions. We seem to be driven into a situation where every piece of information that is released has a policy implication and that has led us to the absurdity of the BOE flip flopping so much it is difficult to discern what their actual policy is (assuming they actually have one). Do I want a report on how we are going to hell in a handbasket every month or every year? I’d settle for every year and leave it at that.

    • Im with you BobJ. The release of unconfirmed and early numbers on a regular basis is counterproductive. I would rather the release timed before the political budgeting process once per year so that we can see a correlation between ouckmes and policy, perhaps the BoE to follow suit.

      I guess those quangoes and covil servants would get very bored along with the media.

      It strikes me of navel gazing, harking back to the blairite days of measuring everything…. but doing nothing.

      Paul C.

    • A broken clock is however right twice a day. These stats may be wrong, but given that the methodology doesn’t seem to change much, we should at least be able to see trends anyway.

      • I agree David and it’s my implicit point that we should be paying far more attention to trends than contemporaneous statistics which are likely to be wrong anyway.

  3. Hello Shaun,

    the problem is that keeping this performance up – we have a very low manufacturing base – we’re all services , basically a busted banking system , selling each other houses with a bit of tourism on top.

    stay cations are unbelievably expensive even with the pound devaluation, and we both know that will not be for long as others follow suit .

    Assuming we can keep this up for 10 years maybe it will turn out all ok

    history is against that though……

    Forbin

    • Rolls Royce aero engines make more profit on long term jet engine servicing than jet engine manufacturing. The Chinese do make money on low value manufacturing due to low wages. I’d not want to work on that pay …

      The important part is to add value, productivity – regardless how it is classified

  4. Hi Shaun,

    tourism up in Britain, could this be related to drops in US international visitors ? – also known as the trump slump

    • Hi Expat

      I didn’t know that there had been a slump in visitors to the US but there have been quite a few weather related issues such as the hurricanes and now the fires in California. Mind you Trump Slump sounds nice doesn’t it?

      I doubt the figures are in any way accurate enough for us to really know.

  5. Tsk Tsk Sean, yet another dig at NGDP targeting at the end. But what is the alternative – rely on the “judgement” of the BoE? Isn’t that just worse, since you are bringing in all sorts of subjective thinking and the risk that someone is unduly swayed by some other piece of data that has the potential to be even more grossly in error (like your trade statistics). Or do you believe that inflation targeting is still the way to go – in which case what about the zero bound problem?

    On the strength of the UK economy and the misleading signals from the various bits of data, I guess this is the new normal as services continue to grow. Eventually we will end up with manufacturing being like agriculture in the UK, vital of course for life, but a very small sector of the economy. Most of our financial statistics, like productivity and trade are designed however for an economy with a high manufacturing share, so they don’t really work for what we have now and what we are trending to. I think this is one of the big problems of productivity, exactly how do you measure the productivity improvement of a better restaurant meal? Or a fancier haircut. Or a nicer designed kitchen?

    My view is that people have a pretty good idea of their personal finances and immediate prospects, so consumer spending is probably the best guide as to how things are going in the economy overall. I know there are lots of moaners about “debt fuelled binges” driving the economy but the vast majority of people are pretty sensible with their finances and only take on consumer debt that they think they can afford. So right now I think things are going ok but not great.

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