Flattening out the GDP debate
Some correspondents felt we were talking down the economy by “arbitrarily” looking at the flat economy since the end of September, rather than 0.5 per cent growth in Q1 of this year.
It was anything but arbitrary. This is a case of us accurately reporting the views of the independent Office for National Statistics as expressed at two press briefings, one on 4 April and another at 9.30am yesterday.
Owing to the holidays, yesterday’s briefing was only attended by a handful of economic journalists – me, the BBC’s Hugh Pym, The Observer’s Heather Stewart, The Independent’s Sean O’ Grady, The Mail’s Hugo Duncan, Bloomberg’s Linda Yueh, The Telegraph’s James Kirkup and a couple of others. I would listen to the comment from the attendees to this briefing, rather than those briefed by the Government or Ed Balls.
Yes, the economy “officially” grew in the last quarter. There’s no official double dip. We reported that clearly yesterday.
I even said “hurrah” in my report. We reported that manufacturing was growing and illustrated that by filming a new wind power tower factory. But the chief economist of the ONS Joe Grice gave us two specific directions that the Q1 figure, taken in isolation, would not give an accurate representation of the underlying health of the economy.
For a flavour of that warning, click on this ONS link.
“The first estimate will be published, as usual, on 27th April. Whatever the estimate is, it will be important to have regard to the 0.5 per cent arithmetic effect and to any possible catch up effect in interpreting it as an indicator of underlying activity in the economy”.
There is also an Official ONS video podcast explaining it in further detail.
The broad point, if the snow was an exceptional event that depressed growth in Q4, then it also flattered growth in Q1.
That was before yesterday’s figures. When they were published I spent 45 minutes listening to the Chief Economist of the ONS, Joe Grice.
Almost his first words were: the economy is “plateauing”. It was the ONS that directed us to looking at the level of GDP, flat since September, as a better measure of the underlying state of the economy.
I interviewed him myself separately and he confirmed that in the absence of the snow, growth in Q4 would have been zero (instead of -0.5 per cent) and in Q1 it would also have been zero (instead of 0.5 per cent).
The size of the economy would have remained at 99.6 (2006 index) for Q3 2009, Q4 2009, and Q1 2010.
Put another way it is relevant to look at the pattern over six months, because of the snow distortion, when at other times it could be argued that such a time period was arbitrary.
In simple terms, the Government can not make great play of the snow effect when it helps them, and then conveniently ignore it, when it does not.
Now of course a Government will always try to put the best gloss on any set of figures. But it strikes me that neither the quarterly measure (+0.5 per cent) nor the annual measure (+1.8 per cent) is telling the full picture. It is particularly bizarre for the Government to be singling out the annual measure, when all of that growth occurred before the September Spending Review, with zero afterwards.
There is also some argument to say not just was the economy, flat, on a plateau, stagnant.
As I wrote yesterday, a true Lord of Doom could work out that there was a marginal underlying contraction in the economy. The economy shrank by 0.5 per cent and then grew by 0.5 per cent (and it was exactly the same number to two decimal places).
Mathematically that means the size of the economy is now smaller than it was in September. Secondly as Chris Giles, Economics editor of the FT points out in his blog, if the lost output from the snow formed all of the 0.5 oper cent Q1 growth (and that we can’t tell today) “the underlying level of activity is now 0.5 per cent lower than that in Q3 2010”.
So the picture is really not great. It doesn’t prove anything about the cuts debate yet.
But I find it curious that several Government ministers were wheeled out to talk up this bad number. The PM even tried to ask Ed Miliband to apologise for “predicting” a double dip (let’s leave aside the fact that no such prediction exists).
It seems very thin to boast about an economy that has fractionally declined over two quarters, on the basis that it did not fall in both quarters.
I would have communicated concern, vigilance, faith in the Bank of England, some disappointment etc.
My fear is that the Government chose to talk up this number because they thought that the above explanation of what is actually happening is too complicated for the cognitive abilities of the public and journalists.
Gordon Brown used to do that a lot. He once went for months without being able to say the word “cut”.
The Labour Treasury even went as far as saying some spending was “moving to a different level” when it was being halved.
Some might call it “being treated like idiots”. Krishnan was entirely right to repeatedly press Danny Alexander.
The fact that after being asked five or six times, he eventually capitulated and admitted: “We saw negative growth in the final quarter of last year, we saw positive growth this year, that is flat overall, but what we have also seen is growth on annual basis of 1.8 per cent,” shows that his robust approach was right.