In many of our between the lines and other blog articles we’ve warned of the over reliance on the various sentiment diffusion indices published by firms such as Markit Economics. The opinion, from a select group of analysts, is that their research data is focused on too narrow a range, which in turn prevents Markit from delivering realistic sentiment readings. However, in the mainstream financial press their data is lapped up, as each snapshot of sentiment is printed the press do cartwheels of optimism…
The UK’s ONS, despite having the title of the “official national statistics” of the UK, is only as good as the information delivered to it by the government apparatus it represents. Many distrust the ONS publications on employment and inflation. Indeed there are many in the analyst community who openly mock the inflation figures given that essentials such as rent, community charge, petrol and domestic fuel is discounted from their basket of goods, in preference to items such as flat screen televisions, personal grooming, or ringtones. However, without an alternative we are in some ways helpless, therefore we have to accept the ONS’ data on the UK’s GDP as credible. This despite certain revisions that, for example, miraculously airbrushed the UK’s double dip recession from the history books.
The ONS revealed on Thursday that the UK’s year on year GDP has been revised down from 1.5%% to 1.3%, these are lukewarm growth figures by any measurement. But there was other data published which on closer inspection reveals what many of us have expected for some time; that the UK growth mirrors that in the USA and the E.U.; it’s very weak and in many ways the wrong ‘kind’ of growth..
Looking at the UK in isolation the recent balance of exports versus imports was dismal; the balance of trade deficit in July came in at £-32bn, as a stark comparison the latest Q’s figure for Germany was €90 bn positive. Since 1998, the U.K. runs consistent trade deficits mainly due to increase in demand of consumer goods, a decline in manufacturing and deterioration in oil and gas production. In recent years, the U.K. has run the biggest trade deficits with Norway, Germany, China, Hong Kong and Netherlands. The biggest trade surpluses were recorded with United States, United Arab Emirates, Australia and Saudi Arabia.
Retail Sales in the United Kingdom decreased 0.90 percent in August of 2013 versus the previous month. From 1996 until 2013, the United Kingdom Retail Sales MoM averaged 0.2 Percent reaching an all time high of 2.9 Percent in May of 2008 and a record low of -4.1 Percent in January of 2010.
The UK and its wrong kind of growth
But perhaps more worrying for UK investors and market watchers was information that will have slipped under the mainstream financial press’ radar on Thursday and in many ways it reveals where UK growth is occurring and how fragile it is; UK business investment decreased by 2.7% a quarter in August and by 8.5% year on year…
The largest increase was in investment in general government, which rose by an estimated £1.0 billion (14.1%) compared with the previous quarter. The largest increase by asset was investment in dwellings, which rose by £1.2 billion (9.7%) to £13.2 billion. Although overall GFCF increased there was a large fall in investment in other machinery and equipment, which was estimated to have fallen by £1.2 billion (-11.2%) to £9.8 billion. Business investment decreased by £786 million (-2.7%). The growth came in government investment or investment in property, hardly a development to hang part of a recovery on.
USA GDP at 2.48% year on year, 0.6% for the quarter
The USA GDP figures are in and whilst on the face of it they’re in line with expectations and positive many analysts will be scratching their heads wondering how growth isn’t stronger given the mammoth amounts of debt the USA has created in order to stimulate the economy? The quarter’s growth was an anemic 0.6%.
As the final quarter of the year figures tend to be seasonally less for Europe, the UK and the USA, given the winter months are traditionally slower than the second and third quarters, GDP growth for these three key areas may fall back, leaving investors and analysts to ask once again where growth will be in early 2014. If still rather anemic then questions need to be asked how far and deep the various stimulus methods used have actually reached.