Today the ONS released their first estimates for economic growth for the second quarter. These quarterly figures have become the centre of a media frenzy; the papers and the BBC have been speculating about them and their implications for days. Some commentators have worked themselves up into a real state, saying these numbers will be critical to the government’s future (see this comment on one which gives quite a good idea of the general coverage before the figures have even been released). This is getting very silly.
The first problem is that these numbers aren’t very accurate; the second is that they don’t mean very much to ordinary people anyway. GDP, and the growth figures based on them, have become very interesting to economists, especially in making comparisons between countries, and looking at trends over a period of time, and compiling all manner of ratios. But they are obscure aggregates that mean very little to us day to day. The economic statistics that matter are those on unemployment, pay rates and consumer prices. Taken together these figures give you a much better idea of what life is like for real people. Further light is thrown by various other measures, like trade figures, retail sales and so on, though these are bit too volatile for single month’s figures to mean very much.
These statistics are painting a clear enough picture of the British economy. Unemployment is high, especially amongst the young, though not as bad as in previous downturns. It remains steady, with employment overall growing. Inflation remains persistently high, largely thanks to higher import costs and taxes. Remarkably, average pay is not keeping up with inflation, so we know that people are being squeezed. The fact that so much of the squeeze is being spread across the working population, rather than concentrated in rising unemployment, is the truly remarkable thing about the economy right now. This is surely a better way for the country to adjust to the new reality. But it does mean that gloom is spread far and wide.
The government should really start to worry if one of two things start to happen. First that unemployment starts increasing again. Second if pay inflation creeps up beyond about 3% (it is now about 2%), since this means that an inflationary spiral might be on hand, so interest rates have to go up. Likewise they should start to feel relief if and when unemployment gets significantly lower, and when inflation falls below 2%. The betting is that the economy will keep bumping on somewhere in between the good and the bad news for some time to come.
Meanwhile there is a very unedifyng argument about the economy going on, with people talking at each other without any serious attempt at improving their understanding. Consider this little discussion on Lib Dem Voice to which I made a couple of contributions. I think the founders of economics as a social science hoped that it would improve people’s understanding of the world around them, but so often economic arguments are just used as ammunition to support prejudices. And you can use them to argue just about anything.
All the more reason to ignore the media coverage of the quarterly growth figures.