The headline stats - on GDP and on unemployment - are, on the face of it, good news for the economy and the government - yet the grim news keeps rolling in.
Yesterday, as it was confirmed the UK had come out of the double-dip recession, Ford announced it will cut 1,400 jobs with the closure of a Transit van plant in Southampton and stamping and tooling operations in Dagenham, highlighting just how fragile the production sector is; as Graph 1 shows, from Q1 2011 to Q2 2012, it lagged behind the overall GDP figure.
As Larry Elliot points out in today’s Guardian, Ford’s decision is consistent with recent business surveys, most of which offered warning signs about a fresh period of weakness in the final three months of 2012, with the year having started on a weak note as consumers were hammered by high inflation and exports hit by the seemingly never-ending eurozone crisis.
Looking at the sectoral figures more widely, Elliot adds:
“The third quarter figures released yesterday overstate the strength of the economy, in part because output lost in June was made up in the next two months and in part because there was a boost to growth from the Olympics. The Office for National Statistics estimates that one-fifth of the growth in the last quarter was the result of ticket sales for the Games, but the GDP data also shows an Olympic effect in very strong performance by shops, hotels and restaurants.
“Overall, output of the service sector – which accounts for 80% of the economy – expanded by 1.3% in the third quarter and is now above its pre-recession peak. That is an impressive performance but is unlikely to be repeated soon. As Danny Gabay of Fathom Consulting pointed out, the increase in service sector output during the third quarter of 2012 alone was greater than in the entire period between the Beijing Olympics of 2008 and the second quarter of this year.”
Meanwhile, in the FT (£), Samuel Brittan highlights the “productivity puzzle” – the riddle of good data yet poor prospects:
“Despite David Cameron’s incredibly silly optimistic response to a much predicted Olympics-based short-term variation in quarterly estimates, UK gross domestic product is still 3 per cent below its 2008 peak. Yet there has been virtually no change in employment. As a matter of arithmetic this has involved stagnation in productivity, defined as output per person. This contrasts with previous recessionary periods in which productivity had risen substantially by this stage. On the basis of past relationships, productivity would have been almost 15 per cent higher. It is little comfort to find similar phenomena in other European countries.
“The real puzzle is why employment has held up comparatively well. On the basis of past relationships, there might have been an unemployment rate of 3.5m instead of 2.5m; the Cameron government would have been out on its ear and the search would be on for a truly national government, if only anybody suitable could have been found to lead it.”
As Tony Dolphin wrote on Left Foot Forward yesterday, underlying growth in the third quarter was more like 0.3 per cent than the 1% headline figure, with longer term trends showing an even less positive picture; over the last year, GDP has not increased at all and over the last two years it has increased by just 0.6 per cent, and output is still more than 3 per cent lower than it was in the first quarter of 2008, before the recession began.
A once-in-a-generation Olympics and Jubilee do not a summer-led recovery make – it would be great if we had these events every quarter, but in their absence, real growth and more real, full-time permanent jobs are what is needed, and what we’re not yet getting from the Tory government.