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.

For further information see: http://www.statistics.gov.uk/cci/nugget.asp?id=192

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.

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: http://www.statistics.gov.uk/pdfdir/bi0210.pdf

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.

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.

Up to 2.9%. No worry about interest rates just yet.

Having been through the most traumatic of years it is easy to believe that the worst is over and that 2010 will be uneventful and perhaps even boring. Nothing could be further from the truth. The outlook for 2010 is one of highs and lows, success and failures. Nowhere will this be more obvious than on the high street.

These are the possible highlights of the retail environment in 2010.

December 2009

Despite retail sales falling back in November, sales pick up in December on signs of the recession ending and increased big ticket items purchases before the January VAT hike. Compared to very weak sales turnover data in December 2008, the annual figures show a sharp improvement, masking continued weaknesses within the retail sector.

January 2010

Signs of retailer problems are starting to emerge. Some retail businesses have not benefited from a pick up in sales and are forced to move into administration.

February 2010

Gloom returns to retail as administrations continue and the impact of VAT hikes weigh upon consumer confidence and their willingness to spend. Global equity markets have started to flatten as investment markets question the strength of the recovery. Optimism is fading and retail sales are starting to suffer.

March 2010

Consumers face the distraction of a close and bitterly fought general election. Messages of both hope and austerity confuse retail expectations. The Conservative Party is elected with a small majority, ensuring a workable political environment.

April 2010

An initial boost of optimism following the changing of government gives a temporary lift to retailing.

May 2010

The Conservative Party’s “Emergency” budget and planned tax hikes start to have an impact, taking the shine off the new government. An announcement of substantial cuts to public sector spending and pay freezes increases the prospect of industrial actions. Public sector employees, who have been so far largely isolated from the downturn, start to feel the impact of the recession.

June 2010

The World Cup provides a temporary distraction, as sales of football merchandise; memorabilia and high definition televisions all support higher retail sales.

July 2010

There is mixed economic news. The global economic recovery is regaining pace after a second quarter lull. However, signs of future interest rate hikes in the UK, USA and Euro zone, raise concerns for mortgage holders.

August 2010

A long hot summer increases social tensions. The threat of public sector strikes starts to increase. The disruption is short lived as public sympathy is not forthcoming.

September 2010

Investors return from their summer holidays with a renewed sense of optimism. The private sector is growing in confidence as the recovery starts to build up steam. Unemployment is beginning to fall as private sector job creation compensates for public sector job losses.

October 2010

Rising consumer confidence and lower unemployment is slow to translate into higher retail sales. Cautious spending habits expected to remain for some time. Shops in South Wales benefit from the Ryder Cup, whilst retailers enjoy a weekend Halloween.

November 2010

The first base rate rise by the Bank of England is unwelcome news for home owners, but also provides a positive signs that the economy continues to take tentative steps back to normality.

December 2010

Solid Christmas sales figures but without a significant increase on December 2009. It has been a long year with many ups and downs but most retailers are happy in the knowledge that the worst is over, the economy is growing, unemployment is falling and things are very gradually moving towards normality.

Carl Malways (economist) – writing for The Retail Database

The Retail Database lists the details of all major shopping destinations in the United Kingdom, providing a reference point for everyone interest in retail, from those looking for a place to shop to retailers researching possible store locations.

The CIPS Purchase Managers Index (PMI) was released today, recording a figure of 50.8 in July, up from 47.4 in the previous month. With the PMI index rising above 50 the manufacturing sector is now showing signs that it is starting to grow again, although at a very modest pace.

The manufacturing sector joins the services sector in returning to growth, which recorded results above 50 in both May and June and is forecast to expand again in July.

This should be seen as a positive sign that the economy is now past the worst of the economic downturn and is slowly returning to growth. However, at just above the 50 mark the data is not showing a rapid rebound in activity but a very modest increase in activity. Given that the economy has so far shrunk nearly 6% since the end of the first quarter in 2008, it will take either much stronger growth than this or a very long time indeed to return the economy to where it was in early 2008.

Recent data has also revealed that employment expectations in the manufacturing sector are starting to improve. This is not to say that employment in the sector is expected to grow in coming months, but the rate at which it is falling is set to slow.

Manufacturing in the UK has lost around 150,000 jobs since the start of this economic downturn, but it should be remembered that the sector is in a process of long-term decline. The sector lost jobs throughout the boom years of this decade and since 1980 has seen total employment fall by over 40%.

On the whole, today’s result should be seen as a positive but tentative sign that the economy is starting to improve. The economic environment remains fragile and a smooth transition to normal conditions is unlikely. Nevertheless, should this trend continue, the economic outlook could be better than many economists have been forecasting.

Preliminary GDP data for the UK came in well below analyst expectations today, falling by 0.8% in the second quarter of 2009. Analysts had expected a fall smaller decline of just 0.3%.

It should be remembered that these preliminary estimates do have a habit of being substantially revised before they are finalised, however the magnitude of this fall should be enough to temper some of the more extreme claims that the recession ended some time back in May.

Don't get me wrong, there are signs that the recession is starting to moderate. The 0.8% GDP decline is nothing compared to the 2.4% seen in the first quarter of the year and recent indicators have pointed to continued improvement. However, pulling out of this recession is going to be a long process, and unfortunately a rather painful one. For one unemployment is up by more than 700,000 since the start of 2008 and will continue to rise, even when the economy starts to grow again.

These GDP figures are also lower than the last budget predicted and will mean that the government is highly unlikely to meet its fiscal forecasts. As a result taxes are highly likely to rise and the public sector is likely to experience cuts in funding. This will inevitably mean that jobs will be lost in the public sector, further forcing up employment and destroying one of the last bastions of secure employment.

A probable turn in the inventory cycle as manufacturing businesses, having run down their stocks, restart production and recent economic indicators suggest that the UK economy may return to positive economic growth as early as the third or fourth quarter of 2009. This is indeed possible. However, the road to recovery will not be smooth. The unwinding of fiscal imbalances, a return to a normal interest rate environment and the withdrawal of quantitative easing will be difficult, threatening recovery.

Whatever shape you think the recovery will take one thing is for sure, it will not be easy!