GDP: Slow but not stagnant
For once, the first estimate for growth in the first quarter is in line with expectations - but it would be hard to argue that it's good news.
Not so long ago, many were hoping for a strong bounceback from the slowdown at the end of 2010. Instead, the figures suggest that the UK economy has barely grown at all since the summer. However, even more than usual, it's important to look behind the headline.
If you look at the performance of individual sectors you come away feeling more upbeat: important parts of the economy are doing quite well, even as others are struggling to move ahead. As I said on the Ten O'Clock news last night, the economy's not doing nearly as well as we would hope, this far into a 'normal' recovery. But very little about the last few years has been normal. When you look at the sectoral breakdown of today's figures the picture is one of modest growth, but not (yet) stagnation.
Let me just flag up three points about today's figures.
The first, and most obvious, point to note is that the construction sector has - once again - made an out-sized contribution. I have discussed the role of construction in the output numbers before. The new GDP figures show a 4.7% drop in output in this sector in the first quarter - the largest quarterly fall since the first quarter of 2009, in the middle of the recession. Were it not for this sharp decline in a sector accounting for just 6% of national output, today's GDP figure would not be 0.5%, it would be 0.8%.
Is there anything fishy about these numbers? My conversations with construction companies and people involved in the construction products industry suggest there might be. It's not so much that the figures are wrong - but that they might be running 4-6 weeks out of date.
As I've noted, for just over a year the ONS has been using monthly figures for construction output, rather than quarterly ones. The statisticians believe that these are not just more timely but also, possibly more accurate, but the series didn't exist until January 2010, so no-one can say for sure what impact the change might have had.
The answer might be that it doesn't make any difference at all - in the long run. But as Dr Noble Francis, economics director at the Construction Products Association, points out, it's easy for contractors to know the value of new orders received in a given month - they just add up the value of the contracts. Estimating the value of their output in that same month is trickier; all they really know is what they've been paid for, which would usually be work done 4-6 weeks before. When the figures were quarterly, it's plausible that more of the difference between the two figures used to get ironed out in the figures presented to the ONS.
This tallies with the numbers we've seen in the past few months, which showed extremely sharp declines in construction output in January and February, even when the weather was fine and the PMI and other surveys suggested that business was fairly brisk. But the official numbers did then show a sharp bounce back in construction in March.
If Dr Francis is right - that strong March figure contains a lot of business carried out in January and February, and the pace of activity on the ground was stronger in the first quarter than the ONS suggests. But I should add that no-one in the construction business is expecting 2011 to be a banner year, with public investment falling off a cliff and private construction still looking subdued.
Second, the productive side of the economy is still doing well, with output now 2.6% higher than in the first quarter of 2011. That's the fastest growth in that part of the economy for quite a long time, though there are signs that the pace of the recovery is starting to slow.
Simon Ward, of Henderson Global Investors, has the most upbeat take on the figures.
"Combined services and industrial output, accounting for 93% of GDP, rose by 0.8% in the first quarter, more than recouping a 0.4% fourth-quarter loss. Monthly estimates, moreover, imply that March output was 0.3% above the first-quarter average, so the second quarter may record a 0.3% gain even if activity is static between March and June.
The notion that the economy has been growing at or slightly above trend is consistent with a steady rise in aggregate hours worked and an erosion of spare capacity reported in business surveys, including the Bank of England's agents' survey."
But, for all the silver linings, there's a still a sizeable cloud hanging over these figures, and it's called the UK consumer. We won't have a direct measure of household consumption in the first quarter for a while, but even before these figures came out, you could say the household sector was technically back in recession, with household consumption falling in both the third and fourth quarter of 2010. Indeed, some would say there had been no recovery for households in the first place: this measure of consumption barely grew at all in 2010.
Today's figures show services up 0.9% on the quarter, but only slightly up on the third quarter of 2010, and only 1.1% higher than a year ago compared with 1.8% growth for the economy as a whole.
Looking at the consumer confidence figures and the noises coming from the High Street it's difficult to see this part of the economy gaining a lot of momentum in the next few months, while most industrial surveys suggest that part of the economy might be starting to slow.
To repeat, the figures show a relatively slow moving economy, not a stagnant one. But they are a disappointment to anyone - like the Treasury and the Bank - who had hoped this second year of recovery would be stronger than the first. Interest rates are now much less likely to go up - and, rightly or wrongly, the sound you hear in the City these days is that of 2011 growth forecasts being revised down.