Today has opened with the media having a bit of a party over the economic news from the UK and they have been in such a rush they have ignored points one and two and dashed to point 3.
Monthly gross domestic product (GDP) fell by 20.4% in April 2020, the biggest monthly fall since the series began in 1997. ( Office for National Statistics)
Actually our official statisticians seem to have got themselves in a spin here which is highlighted by this bit.
Record falls were also seen across all sectors:
services – largest monthly fall since series began in 1997
production – largest monthly fall since series began in 1968
manufacturing – largest monthly fall since series began in 1968
construction – largest monthly fall since series began in 2010
As you can see they have jumped into a quagmire as suddenly we have numbers back to 1968 rather than 1997! What they originally meant was the largest number since we began monthly GDP about 18 months ago. The rest is back calculated which did not go that well when they tried it with inflation. Oh and let me put you at rest if you are worried we did not measure construction before 2010 as we did. Actually we probably measured it better than we do now as frankly the new system has been rather poor as regular readers will be aware.
Now I can post my usual warning that the monthly GDP series in the UK has been very unreliable and at times misleading even in more normal scenarios. Or as it is put officially.
The monthly growth rate for GDP is volatile. It should therefore be used with caution and alongside other measures, such as the three-month growth rate, when looking for an indicator of the longer-term trend of the economy.
So let us move on noting that the reality with data in both March and April hard to collect due to the virus pandemic is more like -15% to -25%. The 0.4% in the headline is beyond even spurious accuracy and let me remind you that I have consistently argued that the production of monthly GDP is a mistake.
Mind you it did produce quite an eye-catching chart.
As we switch to a more normal quarterly perspective we are told this.
>GDP fell by 10.4% in the three months to April, as government restrictions on movement dramatically reduced economic activity
This in itself was something of a story of two halves as we went from weakness to a plunge as restrictions on movement began on the 23rd of March. There is also something of a curiosity in the detail.
The services sector fell by 9.9%, production by 9.5% and construction by 18.2%.
The one sector that did carry on to some extent in my area was construction as work on the Royal School of Art and the Curzon cinema in the King’s Road in Chelsea continued. So let us delve deeper.
If we look at the lockdown effect we can see that it crippled some industries.
The dominant negative driver to monthly growth, wholesale and retail trade and repair of motor vehicles and motorcycles, contributed negative 3.5 percentage points, though falls were large and widespread throughout the services industries; notable falls occurred in air transport, which fell 92.8%, and travel and tourism, which fell 89.2%.
The annual comparison is below.
Services output decreased by 9.1% between the three months to April 2019 and the three months to April 2020, the largest contraction in three months compared with the same three months of the previous year since records began in January 1997.
Actually we get very little extra data here.
Wholesale and retail trade and repair of motor vehicles and motorcycles was the main driver of three-monthly growth, contributing negative 1.95 percentage points.
This brings me to a theme I have been pursuing for some years now. That is the fact that our knowledge about the area which represents some four-fifths of our economy is basic and limited. I did make this point to the official review led by Sir Charles Bean. But all that seems to have done is boosted his already very large retirement income, based on his RPI linked pension from the Bank of England.
We follow manufacturing production carefully and it is one area where the numbers should be pretty accurate as you either produce a car or not for example.
The monthly decrease of 24.3% in manufacturing output was led by transport equipment, which fell by a record 50.2%, with motor vehicles, trailers and semi-trailers falling by a record 90.3%; of the 13 subsectors, 12 displayed downward contributions.
The annual comparison is grim especially when we note that there were already problems for manufacturing due to the ongoing trade war.
For the three months to April 2020, production output decreased by 11.9%, compared with the three months to April 2019; this was led by a fall in manufacturing of 14.0% where 12 of the 13 subsectors displayed downward contributions.
According to the official series my local experience is not a good guide.
Construction output fell by 40.1% in the month-on-month all work series in April 2020; this was driven by a 41.2% decrease in new work and a 38.1% decrease in repair and maintenance; all of these decreases were the largest monthly falls on record since the monthly records began in January 2010.
This gives us an even more dramatic chart so for those who like that sort of thing here it is.
The problem is that this series has been especially troubled as we have noted over the years. For newer readers they tried to fix it bu switching a large business from services to construction but that mostly only raised questions about how they define the difference? There was also trouble with the measure of inflation.
Anyway here is a different perspective.
Construction output fell by record 18.2% in the three months to April 2020, compared with the previous three-month period; this was driven by a 19.4% fall in new work and a 15.8% fall in repair and maintenance.
As we break down the numbers we find that they are a lot more uncertain than the headlines proclaiming a 20.4% decline or if you prefer a £30 billion fall suggest. Let me add another factor which is the inflation measure or deflator which will not only be wrong but very wrong too. The issue of using annual fixed weights to calculate an impact will be wrong and in the case of say air transport for example it would be hard for it to be more wrong in April. On the other side of the coin production of hand sanitiser and face masks would be travelling in the opposite direction.
We can switch to trying to look ahead with measures like this.
There was an average of 319 daily ship visits during the period 1 June to 7 June 2020, a slight fall compared with the previous week.
The nadir for this series was 215 on the 13th of April so we have picked up but are still below the previous 400+. . There was also a pick-up using VAT returns in May but again well below what we had come to regard as normal.
There has been a small increase in the number of new VAT reporters between April 2020 and May 2020 from 15,250 to 16,460.
But I think the Office for National Statistics deserves credit for looking to innovate and for trying new methods here.
Meanwhile I think the Bank of England may be trying some pre weekend humour.