Due to the economic impact of the Covid-19 pandemic we are even more keen than usual to peer under the bonnet of the economy. There is an irony in that in normal times I advise care with the monthly economic output or GDP data and there are obvious reasons to think that is exacerbated now. But we are where we are and here it is.
Monthly real gross domestic product (GDP) is estimated to have increased by 0.8% in May 2021 as coronavirus (COVID-19) restrictions continued to ease to varying degrees in England, Scotland and Wales. This is the fourth consecutive month of growth, albeit slower compared with March (2.4%) and April (2.0%).
In ordinary times monthly growth of 0.8% would be at party levels but the main point here is that things look to have slowed from what we had in March and April. However we now have four months in a row of growth and some factors are shifting towards a more normal setting.
The service sector grew by 0.9% in May 2021 – accommodation and food service activities grew by 37.1% as restaurants and pubs welcomed customers back indoors following the easing of coronavirus restrictions.
The default setting for the UK is for growth in the services sector to lead the economy and it looks to be back. On a personal level I saw quite a bit of filming going on by the lake in Battersea Park earlier this week suggesting that industry is getting back into its groove although that is a couple of months ahead of the numbers today. For them we were told this.
Consumer-facing services grew by 3.2% as coronavirus restrictions continued to ease throughout May, with output levels now at the closest to their pre-pandemic level, at just 7.8% below. Despite growth in consumer-facing services, it is travel, transport and other personal services that continue to contribute to output remaining below pre-pandemic levels.
That can be broken down to this and at the end we see that the film industry looks to have been picking up in May as well.
Food and beverage services activities was the main contributor to the growth in consumer-facing services, growing by 34.0% in May 2021 as restaurants and pubs could serve the public indoors for part of the month. Strong growth means that the industry is now 9.4% below its pre-pandemic level (February 2020), but 0.3% above its August 2020 peak when the Eat Out to Help Out Scheme boosted consumer demand for bars and restaurants. Arts, entertainment and recreation also contributed positively to consumer-facing services growth, growing by 7.3%.
Education and Health
Two of the sectors most affected by the pandemic and it has led to quite a lot of issues as to how this is measured in economic terms and in particular for GDP.
education output contributed negatively to gross domestic product (GDP) in May 2021, as it fell by 0.5% compared with the previous month. Weighted attendance (taking into account the impact of remote learners) for May 2021 was approximately 91.6%, compared with 93.0% in April 2021.
Whilst in many ways this is worthy stuff there does anybody really believe that weighted attendance is accurate to a decimal point? Next up is health and for foreign readers there have been a lot of questions in the UK about the Test and Trace scheme and how effective it has been which provides a background to this.
Human health activities returned to growth, growing by 0.3% in May 2021. Output levels also remain high, driven by NHS Test and Trace services, and vaccine schemes across the UK.
The vaccine is rather different as it has been a success. The measurement is an issue because I have my doubts about how they get to this.
These adjustments are applied to both the government expenditure data as well as output data, and are applied only to volume data .
Reinforced by this bit.
we have used the latest available quarterly government data
Hang on this is a monthly series. I am not sure the detail improves things much as how accurate can it be?
the estimated cost to secure and manufacture vaccines for the UK and deploy vaccines in England, and testing and vaccination data, and estimated imports – and applied indicative volume adjustments to preserve the growth within the health sector and its impact on the economy, rather than applying an adjustment to preserve the level that could give an incoherent growth.
If we take it out of the figures we get quite a different pattern because March was then 1.3%, April was 2.4% and May 0.9%. So whilst growth is lower the pattern changes quite a bit because essentially GDP was assumed to surge in March via the above and we have taken just under half of it away since.
Another Disaster For the Markit PMI Survey
These matter not only in themselves but because central bankers rely on them. Regular readers may recall the Bank of England’s absent minded professor Ben Broadbent revealing this in the autumn of 2016 as he tried to explain how he had got things so wrong. That theme continues here as we note this.
LONDON, June 1 (Reuters) – A deluge of new orders helped to drive a record increase in British manufacturing activity last month as the economy began to recover from the COVID-19 pandemic, a survey showed on Tuesday.
The IHS Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) rose to 65.6 in May from 60.9 in April.
Okay so this morning’s data showed quite a surge then?
The manufacturing sector remained broadly flat, contracting slightly for a second consecutive month, by 0.1%. Production in 6 out of the 13 manufacturing sub-sectors fell in May 2021.
So for the second month in a row they have predicted growth like a rocket and have seen a fall. Those who followed my analysis of how this went so badly wrong in Ireland will have a clue as in the case of the “pharmaceutical cliff” one large producer of a anti-cholesterol drug went off patent but was only one down tick in one hundred up-ticks, well here is the UK version.
The largest contribution to the fall came from the manufacture of transport equipment, falling by 16.5%, as microchip shortages disrupted car production.
Didn’t pretty much everyone know that? The same happened in France and from this mornings release probably in Italy as well so as Britney would say it is a case of.
Hit me, baby, one more time
Returning to more like normal as lockdown eases seems to have had a negative effect here.
Construction output fell for a second consecutive month in May 2021, by 0.8%, following exceptionally strong growth in February and March, and an upwardly revised 0.7% decline in April 2021. Despite the fall, construction remains the only sector to have output levels at above its pre-coronavirus (COVID-19) pandemic level (February 2020).
I have long had my doubts about the measurement here and there was an official confession about problems a few years ago.
We can take a further perspective from this.
Overall, GDP grew by 3.6% in the three months to May 2021, mainly because of strong retail sales over the three months, increased levels of attendance as schools reopened from March, and the reopening of food and beverage service activities
Overall that is a solid performance but there is both a ying and a yang in the number below.
remains 3.1% below the pre-coronavirus (COVID-19) pandemic levels seen in February 2020.
So we are still well behind where we were in spite of the further progress we have made. So still a little sobering as we hope to get right back where we started from in say the winter of this year.
Mind you there is one area which has seen quite a surge.
Persimmon sales rose above pre-pandemic levels in the first half of 2021, as tax cuts and booming British house prices continued to benefit housebuilders.
The UK’s largest housebuilder said on Thursday that revenues reached £1.84bn in the first six months of 2021, outstripping the £1.75bn recorded in the same period of 2019. Persimmon’s sales had dropped to £1.2bn during the first half of 2020. ( The Guardian )
Rethinking The Dollar
I did an interview yesterday which from the comments placed already seems to have gone well.