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Sunday, 28 February 2010

UK Q4 2009 GDP revised up

As expected the GDP was revised up to 0.3% in the final quarter of 2009 and could possibly be revised up further at the final reading.  The second reading is based upon 60% of the data needed to make a complete reading, compared to 40% for the first reading and 80% at the final reading.

It is interesting to note that 0.3% is within the forecast estimates given by economists before the first reading came out.  When the preliminary reading was 0.1% (outside of the forecast range) commentators in the press were quick to belittle the economics profession and the forecasts, questioning their competency.  I think it is probably time that economists questioned the competency of the press, who fail time and time again to understand statistics and their limitations.

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Thursday, 25 February 2010

Worse business investment puts Q4 GDP revision in doubt...

Tomorrow's second reading of the Q4 GDP figure has been widely expected to show that the UK emerged from recession at a quicker pace than the 0.1% originally shown in the preliminary reading.

Although analysts weren't expected a dramatic change in the number, a reading of around 0.2% or 0.3% would have given them more comfort for the outlook of the recovery.

However, the likelihood of tomorrow's second reading showing an upwards revision was put in doubt today by news from the Office of National Statistics (ONS) showing business investment falling sharply in the final quarter of the year. According to the Preliminary reading of business investment in Q4 2009, investment fell 5.8%, compared to a fall of 1.8% in Q3 2009.

Again a health warning must be placed on these figures as they are only preliminary readings and therefore are highly likely to be changed.

For more information:

There remains a good possibility that GDP will be revised up tomorrow. Nevertheless these figures suggest that business was not yet confident enough to spend money in the final months of 2009 and were hoarding their cash in anticipation of things continuing to be bumpy in 2010.

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Wednesday, 3 February 2010

Retailer performance, don’t be fooled by the statistics

Statistics are a funny thing as they can misinform just as much as they inform. As David Brent in The Office said “Statistics are like a lamp-post to a drunken man - more for leaning on than illumination.”

Although as an economist I think this is a bit of an exaggeration but it is certainly true that statistics are not always as they seem. Nowhere is this truer than the economic statistics produced by the Office of National Statistics. I am not diminishing the efforts of the ONS, who in my opinion do a fantastic job and are far better than most other national statistical bodies in this world.

It is the interpretation of their statistics that leaves much to be desired. Commentators are all too willing to take monthly figures released by the ONS and other bodies and use them as direct evidence to support one theory, one forecast or one inclination. In fact monthly data is almost always revised in the following months as new evidence emerges. The monthly data is also highly sensitive to various events that occurred that month which are completely unrelated to the wider economic picture. Looking at longer term trends is a much more satisfactory way of interpreting data, even though they possibly lack the spontaneity that a new release provides.

Therefore I am going to comment upon the retail market in December, whilst attempting to avoid the trap of drawing a conclusion from just one month’s evidence.

I am writing this article before the official December retail sales figures have been released, which will be published next week. However given survey evidence and retailer announcements it is clear that the December figures are very likely to show sales increasing sharply compared to December 2008.

So clearly everything is getting better for retailers, right? People are flocking back to the shops and spending their money, right? A great Christmas on the high street is a sign of a great year ahead, right? Possibly, but probably not. As mentioned at the beginning of this article, don’t be misled by one month’s data.

It must be remembered that the sales data for December 2009 will be compared against the distinctly different retail environment of December 2008. This time last year it seemed for many that the world financial system was in free fall with unknown and possibly cataclysmic consequences. Christmas 2008 came very shortly after the collapse of both business and consumer confidence.

December 2008 followed months of sharp falls in retail sales, forcing the government to cut VAT to help stimulate demand. December 2009 came just before a VAT increase. The 2008 cut did not have as big an immediate impact because it provided a year’s window of lower prices, whereas in December 2009 people were rushing to take advantage before that window closed. Therefore when we see retail sales figures showing a large annual increase in month on month retail sales, this is overstating the strength of Christmas 2009.

This is not to be too downbeat. The signs are that December 2009 in itself was better than expected. Some of the retail sales figures released by major stores have seen higher growth than can be attributed just to a relative weakness in the previous year. It is indeed possible that some consumers have decided to spend some of the savings they have built up in the previous six months or took advantage of lower mortgage repayment costs, due to the cuts in interest rates by the Bank of England, to go out and enjoy Christmas.

One should however avoid euphoria. A large rise in sales is excellent but it must be seen in context of sharp falls of a similar magnitude in the previous year, as well as the possibility that temporary factors boosted sales this Christmas, whilst continued weakness of employment and wage growth could depress sales further through 2010.

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