Thursday, July 26, 2012

UK in recession? I don't believe the numbers.

I know people will think that I don't believe the numbers because I don't want to.

Well, it's not that I don't believe the UK GDP could have shrunk by 0.7%, it's just that I don't think it could have done so whilst at the same time the number of people employed could have risen by 180,000 In fact we have had 3 quarters of employment growth matched by 3 quarters of GDP contraction. It's simply not credible to believe both numbers at the same time, the maths just don't add up. Imagine if I said what happens if you take 2 from 2? How could you get 4?

So what is actually going on?

I haven't got a clue, other than to say there is something odd going on.

The disparity is of course not completely inexplicable, as I can see some special factors that could lead to a growing economy with an oddly shrinking GDP.

Well, there is people working either short time, part time, or self employed. This could well be a large factor leading to employment being buoyant whilst the economy is slack, but we are at record employment rates at the moment.

Other things are playing a part as well. For example oil. if you look at this current graph on the BBC* you will note that in March the price of Brent crude was $125 a barrel, and fell as low as $90, over the same period the pound has risen and fallen to end at roughly the same vale, or in short if the same amount of oil and gas was produced from the North Sea, it's actual value dropped by 24% which is a huge drop. So how much is the oil and gas industry as a percentage of GDP? Well apparently from what I have googled the best  estimate I could come up with is around 6% of GDP. So in one quarter that fell by around a quarter, or 2% of GDP, but "production" in which this sector falls, fell 1.3% total, of which actually oil and gas is huge (About a half so 2% reduction in GDP would mean a fall in production of something like 15% to keep it to 1.3% means a massive growth in other parts of the sector). There must have been massive growth in the rest of production to hold the numbers up that well.

There are some other odd factors. Garden centres. Sounds lame, and this production is lost, but they haven't been busy during a very wet spring. Garden furniture and bedding plants remain unsold.

So what's the story? Personally I think there is growth, and indeed strong growth, hence the jobs numbers, but crucially, oil and gas as well as all other commodities are very volatile, and we produce a lot of oil and gas.

The next thing is construction. Well the sector is far from a boom, but one of it's problems has been the rain. There is a lot of construction that can go on rain or shine but a lot that can't be done in the rain. In short I expect construction to grow in the next quarter.

* This graph will take you to 12 months historical figures from the date you click on the link not when this article was written.