The Lemon Fool

I keep hearing economic commentators say that because of the 20% drop in GDP last quarter, the UK's GDP is now back to what it was in 2003 or something, and 17 years of GDP growth have been wiped out.
But can that really be true? Isn't GDP just like wages, so that if I had a 50% cut in wages last month, although I could say it was my lowest wage since 2003, it would be academic if my full wages were restored next month?

The assumption seems to be that the current GDP will only grow at historical levels, but surely a bounce-back is expected because the economy will be fully open within the next 12 months.

zico wrote:I keep hearing economic commentators say that because of the 20% drop in GDP last quarter, the UK's GDP is now back to what it was in 2003 or something, and 17 years of GDP growth have been wiped out.
But can that really be true? Isn't GDP just like wages, so that if I had a 50% cut in wages last month, although I could say it was my lowest wage since 2003, it would be academic if my full wages were restored next month?

The assumption seems to be that the current GDP will only grow at historical levels, but surely a bounce-back is expected because the economy will be fully open within the next 12 months.

Absolutely. And it is already underway. The UK returned to growth in May (+2.4%).

https://www.ons.gov.uk/economy/grossdom ... -june-2020
GDP grew by 8.7% in June 2020

So reports that the UK is in recession are already outdated.

[usual disclaimers about the accuracy of these figures apply]

zico wrote:I keep hearing economic commentators say that because of the 20% drop in GDP last quarter, the UK's GDP is now back to what it was in 2003 or something, and 17 years of GDP growth have been wiped out.
But can that really be true? Isn't GDP just like wages, so that if I had a 50% cut in wages last month, although I could say it was my lowest wage since 2003, it would be academic if my full wages were restored next month?

The assumption seems to be that the current GDP will only grow at historical levels, but surely a bounce-back is expected because the economy will be fully open within the next 12 months.

All correct except: "it would be academic if my full wages were restored next month?" which needs to have appended: "and if my creditors were happy to forego my debt payments until my full wages were restored".


GS

zico wrote:I keep hearing economic commentators say that because of the 20% drop in GDP last quarter, the UK's GDP is now back to what it was in 2003 or something, and 17 years of GDP growth have been wiped out.
But can that really be true? Isn't GDP just like wages, so that if I had a 50% cut in wages last month, although I could say it was my lowest wage since 2003, it would be academic if my full wages were restored next month?

The assumption seems to be that the current GDP will only grow at historical levels, but surely a bounce-back is expected because the economy will be fully open within the next 12 months.

Quite frequently economic activity doesn't just bounce back. If you look at the 2008 drop as an example you'll see that whilst growth returned to its trend rate, it took until 2013 to return to the level it was. And of course if 2008 could have been avoided then maybe (depending on a lot of things) growth would actually have followed the red dash line I have wobbled in, so one can argue (if one wishes) that there is a permanent loss that is even bigger.

How things will turn out this time remains to be seen. But I can be fairly confident that some of the workforce I have had to make redundant will never work again. They will however be a burden to general taxation for quite a few years until their normal retirement comes about. That is a micro example of why the macro effect can be permanent.


Source = https://www.ons.gov.uk/economy/grossdom ... s/abmi/qna

regards, dspp

dspp wrote:Quite frequently economic activity doesn't just bounce back. If you look at the 2008 drop as an example you'll see that whilst growth returned to its trend rate, it took until 2013 to return to the level it was. And of course if 2008 could have been avoided then maybe (depending on a lot of things) growth would actually have followed the red dash line I have wobbled in, so one can argue (if one wishes) that there is a permanent loss that is even bigger.

Yes that's true, but you need to be careful when you look at such trend line extrapolation. In doing so you aren't prescribing any of that "down" move to the potential fact that the trend line that leads up to it as being part of the cause. If the previous trend was unsustainable, causing issues that eventually "break", you really can't compare the "after" to an extrapolation of the before.

A sustainable and shallower trend before might have avoided the crash, and not be too different to where the post-crash line currently is.

dealtn wrote:

dspp wrote:Quite frequently economic activity doesn't just bounce back. If you look at the 2008 drop as an example you'll see that whilst growth returned to its trend rate, it took until 2013 to return to the level it was. And of course if 2008 could have been avoided then maybe (depending on a lot of things) growth would actually have followed the red dash line I have wobbled in, so one can argue (if one wishes) that there is a permanent loss that is even bigger.

Yes that's true, but you need to be careful when you look at such trend line extrapolation. In doing so you aren't prescribing any of that "down" move to the potential fact that the trend line that leads up to it as being part of the cause. If the previous trend was unsustainable, causing issues that eventually "break", you really can't compare the "after" to an extrapolation of the before.

A sustainable and shallower trend before might have avoided the crash, and not be too different to where the post-crash line currently is.

I agree that is a possibility, hence my "depending on a lot of things". In the case of the UK growth rate in the 200-2008 period I personally think it was unsustainable and driven by a debt-binge. However the underlying point remains, that permanent wealth (or productivity, depending on whether one wishes to use either stock or flow terms) destruction can take place.

I also think that a lot of the UK growth rate post 2008 has been unsustainable .....

regards, dspp

dspp wrote:

dealtn wrote:

dspp wrote:Quite frequently economic activity doesn't just bounce back. If you look at the 2008 drop as an example you'll see that whilst growth returned to its trend rate, it took until 2013 to return to the level it was. And of course if 2008 could have been avoided then maybe (depending on a lot of things) growth would actually have followed the red dash line I have wobbled in, so one can argue (if one wishes) that there is a permanent loss that is even bigger.

Yes that's true, but you need to be careful when you look at such trend line extrapolation. In doing so you aren't prescribing any of that "down" move to the potential fact that the trend line that leads up to it as being part of the cause. If the previous trend was unsustainable, causing issues that eventually "break", you really can't compare the "after" to an extrapolation of the before.

A sustainable and shallower trend before might have avoided the crash, and not be too different to where the post-crash line currently is.

I agree that is a possibility, hence my "depending on a lot of things". In the case of the UK growth rate in the 200-2008 period I personally think it was unsustainable and driven by a debt-binge. However the underlying point remains, that permanent wealth (or productivity, depending on whether one wishes to use either stock or flow terms) destruction can take place.

I also think that a lot of the UK growth rate post 2008 has been unsustainable .....

regards, dspp

I suspect there isn't much we are in disagreement about (although with respect to the post 2008 comment I don't think I would say "a lot", only "some).

johnhemming wrote:

GoSeigen wrote: swingeing cuts in department budgets wherever he could get away with it politically. He was one of the most economically ignorant chancellors the UK has had for a long time

Try checking what happened to total public spending in real terms.

Old post, but I missed this. The actual aggregate outcome is not the point. Osbourne's policy was austerity. That he would actually fail to keep control of either the deficit or debt (which is the accumulation of deficits, for those who didn't realise) was predictable and predicted by me and others. He was trying to go against the grain of the market, quite clearly -- which is one point contributing to my assessment of him as economically ignorant.

"The UK is bankrupt" was the mantra, for those who need reminding (top result Kevin Dowd LOL). I know John were part of that awful coalition, so I understand his doing his best to defend it, but the LDs betrayed the country by taking part in the Tories' economic nonsense and rightly got spanked at the next election.


GS

GoSeigen wrote:I know John were part of that awful coalition, so I understand his doing his best to defend it, but the LDs betrayed the country by taking part in the Tories' economic nonsense

So I disagree with this.

I know that a limited amount of money printing is normally OK. In the current circumstances we are getting away with a lot more money printing.

However, it remains that what the coalition did is quite close to what the Labour Party said that they would do. One can argue either that there is a limit on money printing or that there isn't.

There is a reasonable argument that government spending increases the GDP. That then reduces the fiscal deficit, but only by about 30-40% of the spending in normal circumstances.

If one wishes to criticise the economic policy of the 2010-2015 government then one should propose an alternative (and not just a vague handwaving alternative).

SalvorHardin wrote:Our economy is dominated by a single city (and then a single region), in which a disproportionately large of economic activity has ceased due to government diktat (national and local), incompetence

Were UK plc managed by technocrats rather than repeated/combined Lab and Con incompetence, then instead of having seen gold reserves halved by Brown at discount price levels, the UK could have accumulated a sovereign wealth fund comprised of both business interest and gold reserves of sufficient size to pay for the entire NHS and some i.e. £4Tn wealth fund generating 4% real (£160Bn/year benefit).

Not difficult, the BoE even warned Brown that he was doing the wrong thing, but I guess that's what you get when Parliament opted to gift UK sovereignty away, and even very recently was still indicating strongly that it didn't want it back, it clearly would prefer to remain being the EU's UK regional assembly and a incompetent one at that.

Rightfully the people are sovereign. They democratically and lawfully voted for sovereignty to be reinstated. Parliament doesn't want that and as such that EU's UK regional assembly should step aside in respect of the sovereignty of the UK people. But as ever, Parliament is so dishonourable - so much so they have to repeatedly address each other with a 'honourable' address apparently in order to fulfil some degree of self respect.

dspp wrote:Tough call for Brexiters. Do they explain it by saying that the Cons are incompetent ? Or do they explain it by saying it is worth it for other reasons ? Or do they attack the messenger ? Or do they seek to ignore it and throw some dead cats on the table ?

Time for a dead cat maybe?

Looking at the official Q2 GDP release, rather than relying on the Guardian preview, we see that on the Income measure the nominal GDP contraction was only 15% (in line with France).
https://www.ons.gov.uk/economy/grossdom ... me-measure
So this means that there was 6% "inflation" over the quarter.

This is mainly attributed to the government paying the same (or more) for health and education, etc, but less being delivered. "Inflation" in these areas was over 30%.

No other country has analysed the statistics in this way, which may go some way to explaining why the UK's comparative performance looks so bad.

There is some discussion of this available on the net, for those who are interested, eg:
https://julianhjessop.com/2020/08/22/ho ... in-uk-gdp/

So, it looks like the UK will report a much deeper "V" both on the way down and on the way up.

As for the up-slope, UK retail has already made a V-shaped recovery:
https://www.ons.gov.uk/businessindustry ... s/july2020


[usual disclaimers about the expected accuracy of these figures apply]

JamesMuenchen wrote:Looking at the ...

Great post, thanks

Significant bounce, as to be expected.

https://www.bbc.co.uk/news/business-54914410

Difficult to envisage the November lockdown not having a negative effect on the series though, likely followed by a second "V" recovery. (Then we hit the potential Brexit wobble in January where it is still too early to accurately predict what will happen given the terms of transition are still unknown and negotiations continue).

dealtn wrote:Then we hit the potential Brexit wobble in January where it is still too early to accurately predict what will happen given the terms of transition are still unknown and negotiations continue).

Technical point of order: we left the EU on 31st Jan this year, and we are currently in the transition period, during which the UK remains subject to EU law and we continue to participate in the EU's single market and customs union.

But, that transition period ends in ~50 days time because the UK Govt declined to seek, by the 30 June deadline that applied for such an action, the 12-24 month optional transition period extension which the Withdrawal Agreement had made provision for.

tikunetih wrote:

dealtn wrote:Then we hit the potential Brexit wobble in January where it is still too early to accurately predict what will happen given the terms of transition are still unknown and negotiations continue).

Technical point of order: we left the EU on 31st Jan this year, and we are currently in the transition period, during which the UK remains subject to EU law and we continue to participate in the EU's single market and customs union.

But, that transition period ends in ~50 days time because the UK Govt declined to seek, by the 30 June deadline that applied for such an action, the 12-24 month optional transition period extension which the Withdrawal Agreement had made provision for.

How much transition do we need? It's been 4 1/2 years already.

Interesting data on the job market.

https://www.bbc.co.uk/news/business-54916307

There is, of course, lots of focus on the numbers of jobs being lost at the moment, but a regional breakdown of vacancies shows how complex this picture actually is. By focussing solely on the gross available supply of labour, rather than the more complex regional breakdown of demand, misses a lot of the story.

Such is macro-economics (and I suspect macro everything). It is important to remember sometimes that the macro, as well as being a study in itself, is also an aggregation of all the micros.

I note a demand for large goods vehicles drivers. I wonder what they are actually looking for, large drivers? Drivers for carting large goods around the country? or maybe drivers for large trucks?

Otherwise I would have thought that the stats were fairly predictable.

Dod

We won't really know where we are until January (post Brexit proper).

Dod101 wrote:Otherwise I would have thought that the stats were fairly predictable.

You thought it fairly predictable that in November, the month of the second wave peak, that the North West containing the cities at the highest tier of Covid restrictions, would see the highest growth in jobs being advertised? Odd so many firms were being (temporarily) closed yet increasing recruitment.

It wasn't immediately apparent to me.

dealtn wrote:

Dod101 wrote:Otherwise I would have thought that the stats were fairly predictable.

You thought it fairly predictable that in November, the month of the second wave peak, that the North West containing the cities at the highest tier of Covid restrictions, would see the highest growth in jobs being advertised? Odd so many firms were being (temporarily) closed yet increasing recruitment.

It wasn't immediately apparent to me.

Well there is usually a lot going on behind the scenes and even before the vaccine announcement people will be planning for the future. But there is not a lot of benefit in speculating.

Dod