Today has brought a whole raft of data for our attention and much of it is eye-catching. So let is begin with La Belle France a subject on my mind after watching the film Waterloo last night.
In Q1 2020, GDP in volume terms fell sharply: –5.8%, the biggest drop in the series’ record, since 1949. In particular, it is bigger than the ones recorded in Q1 2009 (–1.6%) or in Q2 1968 (–5.3%). ( Insee )
I have to confess I am a little in the dark as to 1968 and can only think it may have been related to the student riots of the era. The Covid-19 vibe is established by the way that domestic demand plunged.
Household consumption expenditures dropped (–6.1%), as did total gross fixed capital formation in a more pronounced manner (GFCF: –11.8%). Overall, final domestic demand excluding inventory changes fell sharply: it contributed to –6.6 points to GDP growth.
I guess no-one is going to be surprised by this either.
Overall production of goods and services declined sharply (–5.5%). It fell the hardest in construction (–12,6%), while output in goods declined –4.8% and output in manufactured goods dropped –5.6%. Output in market services declined by –5.7% overall.
Such production as there was seems to have piled up.
Conversely, changes in inventories contributed positively to GDP growth (+0.9 points).
At a time like this GDP really struggles to deal with trade so let me use France as an example on the way to explaining the issue.
Exports also fell this quarter (–6.5%) along with imports (–5.9%), in a less pronounced manner. All in all, the foreign trade balance contributed negatively to GDP growth: –0.2 points, after –0.1 points the previous quarter.
As you can see the net effect here is rather small especially in these circumstances. But there is a lot going on as we see large moves in both exports and imports. Another way of looking at this is provided by the Bureau of Economic Analysis in the US.
Imports, which are a subtraction in the calculation of GDP, decreased
A lot less detail for a start. Let me help out as imports in the US fell heavily by US $140.1 billion in fact and exports only fell by US $56.9 billion. So net exports rose by US $83.3 billion and boosted the numbers. This is really awkward when a signal that the US is doing badly raises GDP by 2.32% on its own and in net terms by 1.3% ( care is needed with US numbers because they are annualised).
So here is a major caveat that the US may appear to be doing better but the trade breakdown hints strongly things are much worse than that.
Spain
Spain had been having a good run but sadly that is now over.
Spanish GDP registers a -5.2% variation in the first quarter of 2020 compared to the previous quarter in terms of volume. This rate is 5.6 points less than the Registered in the fourth quarter. ( INE)
The chart is quite extraordinary as the good run since around 2014 is replaced by quite a plummet. We see that it is essentially a domestic game as like France the international factor small.
For its part, external demand presents a contribution of 0.2 points, three tenths lower than that of the previous quarter.
We do get a hint of what is about to hit the labour market and indeed unemployment which had remained high in Spain.
The employment of the economy, in terms of hours worked, registers a variation of ,5.0% compared to the previous quarter.
Inflation
Let me return to France to illustrate the issues here.
Over a year, the Consumer Price Index (CPI) should rise by 0.4% in April 2020, after +0.7% in the previous month, according to the provisional estimate made at the end of the month. This drop in inflation should result from an accentuated fall in energy prices and a sharp slowdown in service prices.
A problem leaps off the page and ironically they have unintentionally described it
an accentuated fall in energy prices
That is because the weight for energy is too high as for example factories stopped work and there was much less commuting. Then there is this.
Food prices should rebound sharply, due to a strong rise in fresh food product prices.
Fresh food prices rose by 18.1% in March but are weighted at a mere 2.3% as opposed to the 8.1% of energy, when we know that there was heavy demand to stock up. I do not wish to demean their efforts but the claim that other food prices rose by 1.4% compared to 2.3% this time last year looks dodgy and may well be suffering from this
The price collection carried out by collectors on the field (about 40% in the CPI) has been suspended since 16 March:
Also it was a rough month for smokers as tobacco rose by 13.7%.
If we look at Spain we see the energy/fuel problem emerge again.
The preliminary data that is presented today through the leading indicator of the CPI, places its annual variation at –0.7% in April, seven tenths below that registered in March, influenced for the most part by the drop in fuel prices and fuels, compared to the increase registered in 2019.
Also with food prices albeit it on a lower scale.
It is remarkable the behavior of food prices, whose annual rate passes from 2.5% in March to 4.0% in April. Of these, fresh food reaches a rate of 6.9%, three points above that of the previous month, and packaged foods, place their annual rate at 2.2%, six tenths above that of March.
Although to be fair to INE in Spain they are trying to adapt to the new reality.
the prices of the products included in the goods special group COVID-19 increased 1.2% in April, compared to the previous month. While the services COVID-19 decreased 1.4% in April compared to March.
Unemployment
This may well be the biggest statistical fail I have seen in the world of economics.
In March 2020, in comparison with the previous month, employment slightly decreased and unemployment sharply fell together with a relevant increase of inactivity.
Yes you did read the latter part correctly.
In the last month, also the remarkable fall of the unemployed people (-11.1%, -267 thousand) was
recorded for both men (-13.4%, -169 thousand) and women (-8.6%, -98 thousand). The unemployment
rate dropped to 8.4% (-0.9 percentage points) and the youth rate fell to 28.0% (-1.2 p.p.).
They had two issues to contend with but tripped over a theoretical flaw. The issues were having to do the survey by telephone and a sample size some 20% lower. The flaw is that to be unemployed you have to be available for work and in this situation I am sure many reported that they were not. Indeed you can see this below.
In the last three months, also the number of unemployed persons decreased (-5.4%, -133 thousand), while
a growth among inactive people aged 15-64 years was registered (+1.5%, +192 thousand)……..On a yearly basis, the decrease of employed people was accompanied by a fall of unemployed persons
(-21.1%, -571 thousand) and a growth of inactive people aged 15-64 (+4.4%, +581 thousand).
Comment
I summarised the situation on social media yesterday.
Reasons not to trust the US GDP print
1. Advance estimates only have ~50% of the full data
2. Inflation estimates will be nearly hopeless at a time like this.
3. Output of say planes for no one to fly in them has obvious issues….
Let me add a fourth which is the impact of imports that I have described above.
Switching to the unemployment numbers from Italy I do not blame those compiling the numbers and find them helpful when I have an enquiry. But someone higher up the chain should at least have put a large warning on these numbers and maybe even stopped their publication as statistics are supposed to inform not mislead. They seem to have taken Talking Heads a little too literally.
Stop making sense
Quit talking
Stop making sense
Start falling
Stop making sense
Hold onto me
You’re always at your best
When you’re not making sense
Me on The Investing Channel
Notayesmanseconomics's Blog 
Shaun,
First the History lesson; Civil unrest and Charles De Gaulle fleeing the county brought the economy to a halt as explained here>
https://frenchly.us/what-happened-may-1968-mai-68/
As to what to do when we don’t know what inflation, GDP and unemployment is going, well even the so called “Masters of the Universe” don’t know that at the moment including our world leaders and economists so my pennyworth isn’t worth considering too long.
But we could all pray for the situation as many think this pandemic biblical in its nature. Where ever you looked most people were blaming consumerism for global warming and pollution in both the air and our oceans and nature has brought it all to a halt!
It gives us time to think and contemplate how we will proceed in future, if man walks away from God, God cannot be blamed for the destruction we now find ourselves in, for the Human Race brought it on themselves.
Even now the supermarkets are causing more suffering to workers in India canceling orders because we aren’t buying clothes but too many clothes were being produced anyway in our fast fashion and throw away society.
The human race being given time to reflect at the moment and speaking with some friends as soon a s the lockdown is over they wont be rushing into the shops to go on a buying spree.
In fact a survey a few weeks ago indicated many people do not want things to revert to the way they where with all the noise and stress and pollution. There are many jobs out there where people are piling on tubes and trains working from home in offices and on computers, where they could cut all that travel down and happily work at home at their own pace.
Sounds like you know a load of middle class virtue signallers to me, who are feeling guilty for living the life of Reilly and worried the good times are coming to an end.(most my mates are potless so dont have such worries)
If your friends have time to think and are worried about changing their ways, its because they’ve done very well out the last 2 decades of neoliberals handing other peoples money to certain groups, and aren’t too worried where the next dose of money is coming from.
I’m all for allowing the economy to have a recession/depression and riding it out, but whats happening now is sick and i don’t mean the fake pandemic. See what Fords CEO stated yesterday.
As someone who did (until March) work in heavy industry and is looking for work on a daily basis, i can see there being a depression in this kind of work for at least 2 years with wages decimated for those that do manage to get a start. Though no doubt numbers will be rigged to suit whatever the current agenda is.
Its absolutely laughable to think for one moment that our politicians or these so called scientists who don’t need to publish their work to close the nations economy; care for one moment about the lives of the Great British pleb. The last 2 decades has shown these technocrats such as those at the BoE to be subhuman and happy to ruin lives of millions of people to keep their rigged banking/house/land price scam going as they do very well out of it. The “scientist” equivalent to Carney, King and the gang is proving to be even worse.
Why do you call this a fake pandemic? I know four people who have had this virus and survived and three others who were older ( but in good health generally ) who caught it and died. My cousin is a professor of virology working on the Chinese coronavirus and you would have a hard time convincing him that this pandemic is fake!
I have seen norovirus affect whole classes of schoolchildren, so your personal experience is what will form your opinion, & that’s fair.
In the most literal sense of the word it is a pandemic, as it has spread over the world, just as the flu/common cold do thus in the literal sense of the word we constantly have pandemics.
Were these people you know actually tested, or was it just put on the persons death certificate? As it is Govt policy just to put CV on death certificates, whether they’ve been tested or not.
So as that clip by a “scientist” shows, the stats we are given by the government are a complete fabrication, they are lies. But we shouldn’t question a thing as “scientists” tell us they know better.
In time, heretics like myself will get our day in the sun, once the economy has been totally trashed and those who were happy to get their 80% for sitting indoors start kicking up a fuss and digging a little deeper as to why they’ve no work and no money.
Yes three of the four who are now OK tested positive ( two were health workers ) and of the three who died I know for sure that two were tested and the other ended up on a ventilator. They were in their 80’s but in decent health until they caught the virus. It’s decimating older people around here. One of the health workers gave me the stats and you wouldn’t want to be in a care home right now.
I should add that I do appreciate where you are coming from and would certainly like more clarity on who is dying from Chinese virus and who are dying with the virus however I accept that this can be difficult to determine and it will be the doctors best judgement. The people I know of who died were otherwise expected to live on until they contacted the virus hence the conclusion is that the virus killed them.
And what are their ages, did they already have life threatening illnesses, were they obese, were they black?
I am sorry for your personal loss, but am fed up of fearmongering. This epidemic is taking no more lives than a bad flu season. The excess death stats are not representative as they are not mid winter when the flu deaths happen. This winter there was hardly any excess deaths because of flu, so most people who have died have actually had 4 months more life than normal.
About 30% of deaths in hospitals ‘with’ cv-19 happen in ICUs, which means 70% died on wards. The same if not more pronounced proprtions in care homes. They were already dying. If you take the UK numbers of death and apply the 30% you get not much different to Germany, where doctors continue to put ‘heart attack’ etc on death certificates, not that they may have also had cv-19 which they probably got in hospital. The tragedy is that the non-risk groups have been locked up and the at-risk groups have been exposed.
Of couse cv-19 is not fake, but its just another coronaviris epidemic. It would have peaked and died off without the draconian actions. Its ‘novel’ , but so were the two influenzas in 2019/20, ‘novel’ just means a new strain, nothing magical or evil.
40,000 people died in the last serious flu epidemic to hit the UK in this century, at 26000 this one has some to go yet, and as its peaked on 4 April I doubt it will. By VE day it will be 3 sds from the peak, at that point the govt will capitulate and the lockdown will end.
And once its gone, its gone. This idea of 2nd peak is nonsense, the only reason it will have an elongated tail is because of the lockdown. The volume of the bell curve will be retained , the amplitude has been slightly flattened, which means the overall duration will be extended.
Seems they were in their 80s, but of the triathlete variety.
As someone in his 40s whilst growing up i saw that generation smoke and drink like no tomorrow, along with being the first generation to fall in love with the ease of processed food.
No way should the education of todays children and the livelihoods of my generation be destroyed so they can look out the care home window for a few months more, and the govt turn the nation in a totalitarian communist state.
Good people do good.
Bad people do evil.
Religion is the mechanism to get good people to do evil.
I despise religion.
therawbuzin
I disagree. As well as economics I have my other interests are religious doctrine.
The religious doctrine is to encourage bad people to change their ways, there is enough money in the world to feed the world if it was shared out fairly.
There is the tithing system alone which if everyone tithed the poorer would be better off.
You are entitled to your view on religion but I feel you are wrong on the points you are making certainly the COE neither the Catholic Religion is a mechanism to get good people do evil or put it this way I have seen no evidence of that.
Both religions refer to scripture and advise help ones neighbor (sadly most people don’t do so they crave materialism and the Bible warns against that:
Leviticus 19:18 – Thou shalt not avenge, nor bear any grudge against the children of thy people, but thou shalt love thy neighbour as thyself: I [am] the LORD. Mark 12:31 – And the second [is] like, [namely] this, Thou shalt love thy neighbour as thyself. There is none other commandment greater than these.
Now I am not saying all religious leaders do the right thing in the book of Revelations the Churches were warned about their wrong behavior and we have seen that with Child abuse. But if you understood religion and particularly the two religions which I have mentioned, the apostle Paul said ” all have fallen all have fallen short of the glory of God”.
No man( or woman) is perfect neither am I.
I don’t claim perfection, far from it, & this is not the place to discuss the depths to which religion can stoop, although it would be very easy to do so. I only posted my distaste for religion to counter your post, & hope that will be an end to the matter on here.
You can be sure that after decades of outright manipulation of the inflation figures and recently resisting every effort to include house prices in it, “the elite”, once house price falls begin to appear permanent and accelerating, will start to include them as it will then be one of the main justifications for further QE/MMT/UBI as the UK economy which IS now the housing market implodes further.
So Shaun, I’m afraid that in the end your battle to have them included will be a rather Pyrrhic victory in that they will only allow it to suit their agendas.
So what you’re saying is 2+2 really does =5
Yes because one of those two’s is a rigged figure – the real value of which is three:)))
In future the equation will be 2+(-5)=-3 so we must print more money to get the equation to go positive!!! But the -5 mostly comes from falling house prices!
KEVIN
Lloyds bank is already forecasting house price falls of 5% which I think is an under estimate but have outlined falls of 30% in worst case scenarios.
I actually think house prices should fall 30% to wipe out all the gains since the last financial crisis since this pandemic is worse than that.
There are going to be massive redundancies coming in due course and businesses going bust and the general population be worse of as taxation will also have to rise hitting the more well off.
British Airways is just the start and the pilots wages far more than the average wage and 25% of them are predicted to be made redundant. There will be more job losses in the airline industry. Then there will be more job losses in retail and leisure, pubs, clubs coffee bars and restaurants, social distancing is going to decimate the sector.
Moat people though the Supermarkets would do well out of the coronavirus bur not only did TESCO warn recently the additional costs dealing with stockpiling would not benefit the bottom line, Sainsbury’s came out with a similar warning today and warned of flat profits after taking a £500 million hit through loss of clothes sales.
I notice Borris trying to give Joe Public of a bounce back but I cannot see that happening with my simplistic understanding of economics.
If the economy was to bounce back you wouldn’t be seeing the banks shares in a collapsed state imo.
I would be willing to accept prices in the target inflation indicator when they were on the upswing or the downswing as long as it was a permanent change.
Shaun,
Most shops are closed , hospitality & tourist industries dormant why the surprise at lack of economic activity ? Drastic lockdown achieved but unwinding like QE difficult to navigate!
Hi chris
Not so much surprise rather trying to learn as much as we can which mostly involves digging below the headlines. The worst is yet to come if this from a few hours ago from the Atlanta Fed is any guide.
“The initial GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2020 is -12.1 percent on April 30. The initial estimate of first-quarter real GDP growth released by the U.S. Bureau of Economic Analysis on April 29 was -4.8 percent, 3.8 percentage points below the final GDPNow model nowcast released on April 28.”
It is amazing that they think the 0.1 is relevant though,,,
Hello Shaun,
so what GDP figure should we print today? After all for the public good we shuttered the economy which is 80% services based , so how bad ? quite bad really
what ever the figure is it will be just a whetted finger in the air – tractor production style.
I stated a while back that GDP was 2% optimistic . Well we have had an event , now they cannot just bumble along with the pretense but they can still just make the numbers up ! 😉
pull up a chair , have some popcorn…
forbin
forbin,
Because of furloughing we wont know for a while what true unemployment is. In fact they are changing daily. Oasis was bought out of administration yesterday and
the purchaser not taking on the stores so the furloughed staff now go on the unemployment register. This is not the first company to do this Debenhams have done the same lately.
Its going to take 6 months or so imo where the economy is actually going but there are bound to be more people out of work.
What I am not certain is where inflation is going, oil is going nowhere but it would appear their may be inflation in the food sector but not done much research in that area lately.
What should happen in a world recession is prices fall as the world gets more competitive and there be less money around (supply and demand) but it doesn’t always pan out that way.
I’m retired so it doesn’t affect me that much as I live a relatively humble lifestyle, I feel sorry for the younger generation who may suffer from the after effects of the pandemic but they may be fortunate to be able to get on the housing ladder if house prices fall to a more reasonable level.
Perhaps second homes and empty properties and empty blocks of flats should be taxed more to free up more property.
Certainly there will have to be changes otherwise there may be riots on the streets in due course when unemployment rises and people evicted from their homes.
Great blog and video as usual, Shaun.
Re GDP updates, StatCan announced today that GDP by industry for February had been essentially flat (0.3% growth at an annualized rate). It was a surprisingly strong performance considering the nasty things happening besides COVID-19. The railway blockades had their strongest effect on February growth (they were not dismantled until the first week of March) and there was a 5.1% decrease in rail transport in February. The rotating teachers’ strikes in March caused a 1.8% decrease in education services. (This month agreements have been reached with all unions but the schools are out until at least the end of May due to COVID-19.) Exceptionally, StatCan issued a flash estimate for March GDP growth earlier showing a 9.0% decline in real GDP and a 2.6% decline for 2020Q1, which has not been revised with this February update. The actual estimates will be released a month from now. So for now, real GDP peaked in February and then fell over a cliff in March. However, real GDP per capita peaked in June 2019. Contrary to the boosterism of the government going into the federal election, the Canadian economy has not been operating on all cylinders for some time before COVID-19 struck.
The monthly movements of the real GDP series are those of a series at 2016 prices, but eventually they will be replaced by chain Fisher estimates. I don’t carry a torch for the chain Fisher approach, but the European standard followed by the UK, calculating annually linked chain Laspeyres estimates, really shows its drawbacks at a time like this. There is really a need for the use of some formula, not necessarily Fisher, that satisfies the time reversal test.
Since Carney reckoned Climate “Science” was appropriate as economic discussion, I hope you don’t mind if I venture there Shaun.
The good news about the pandemic, is that, according to the BBC, CO2 levels are set to drop 8% this year!
You may think this is great news, or you may think it strange.
Why strange? Well climate alarmists themselves (IPCC) have recognised that humans only contribute 3% of all CO2 & that 97% is natural.
Climate alarmists also claim that co2 stays in the atmosphere a long, long time; centuries.
There’s a huge contradiction here.
Liars cannot join up their thinking.
So are we better with fraudulent figures (all of them) or none at all?
but it’s the emissions and not the total in the atmosphere .
“This updated tentative estimate is equivalent to around 5.5% of the global total in 2019. As a result, the corona virus crisis could trigger the largest ever annual fall in CO2 emissions in 2020, more than during any previous economic crisis or period of war.
Even this would not come close to bringing the 1.5C global temperature limit within reach. Global emissions would need to fall by some 7.6% every year this decade – nearly 2,800MtCO2 in 2020 – in order to limit warming to less than 1.5C above pre-industrial temperatures.”
every year – remember that
Forbin
So if you were right, & I do not concede that for 1 second, is it better that we try to protect coastlines by going back to the Stone Age, or just gradually move vulnerable people inshore?
Tuvalu & Vanu Atu are expanding.
Forbin:
From IPCC Fourth Assessment Report: About 50% of a CO2 increase will be removed from the atmosphere within 30 years, and a further 30% will be removed within a few centuries. The remaining 20% may stay in the atmosphere for many thousands of years.
________
Yet 8% in one year?
that’s their figure – I thought I had made the point that the economy will need to collapse even more if we follow that advice ……
that is 7-8% reduction per year and we have already seen ( or maybe not I do note the uncertainty in the figures released ) . 5.5 % for this pandemic restrictions BUT 7.6% for the climate ……
As for CO2 yes I agree that the flows are poorly understood by the public and in general the Green do misrepresent things including what they say is needed and what they say in private is needed.
anyone else reading please please please look up the data yourself
this guy I believe is no longer with us but his legacy data is here
http://www.withouthotair.com/c31/page_241.shtml
that page is the carbon cycle.
I guess my point is that the Green agenda is one fraught with politics and potentially will do great harm to all of us despite their “good” intentions.
Forbin
Hi Shaun
I have no inclination to offend you
or any fellow bloggers but as a person
who is not a conspiracy theorist I think
we must wait for several weeks to hazard a
guess where things might lead us.
Assuming that TPTB want to give us accurate
statistics,which in itself is a big ask, there is an
opportunity for a sea change if they choose to
take it.
I have noticed that a few people I know have
accepted a pay cut,15-20% to keep their jobs.
Clearly a fair percentage of businesses won’t
reopen and a few will thrive and prosper. The
“Don’t Knows” are massive, travel, leisure,
transport and large swathes of manufacturing
are all in limbo. Some timid people will be to
frightened to return to work and will be subsidised
by funny funds which to quote Shaun will go to
infinity and beyond.
As part of the older generation I share the view
a simpler de globalizised world in which we pay
more for UK goods would be preferable, simplistic
I know but better.
Will we go the disinflationay route where big ticket
purchases will be delayed and necessities soak
up more of a lower income ?
JRH
Hi JRH
The problem with that sort of world if the way that the establishment would look at it. Lower incomes and lower taxes will maybe barely fund their salaries let alone their grand schemes. It is one of the reasons they love inflation.