Another nail in the coffin for recession doomsayers
The UK economy is becoming more and more interesting.
Last week we have had two positive surprises. On Tuesday we had the fall in inflation to 2.4%, a much sharper decline than expected, with the prospect that it may be below 2% by the autumn.
On Wednesday we had a further fall in unemployment on the International Labour Organisation measure, down to 8.1%, and a rise in employment of 181,000 on the quarter.
The first is encouraging because it holds the prospect that inflation might be running below pay increases later this year. Wage growth, excluding bonuses, is running at just under 2% a year. It does not need to climb much to get it back to 2%, just as inflation does not need to fall much to come below 2%. If that were to happen we would start to experience a rise in real incomes after the sharpest squeeze on living standards for a generation.
Falling inflation also has an impact on real growth, for if inflation goes down and money GDP stays the same that translates directly into growth. If money GDP rises to 3% and inflation is 3% there is a zero rise in GDP; if inflation then falls to 2% and money GDP is up by 3%, that gives you 1% real growth.
But it is this second surprise, on the labour market, that is really exciting because it is one more nail in the coffin to the idea that the economy is in recession.
The employment rate is up. The inactivity rate is down. The number of hours worked is up. Full-time jobs are up as well as part-time ones. Employment is up as well as self-employment. The private sector is creating five jobs for every one lost in the public sector.
It is plausible that in a few months the total number of people in employment in this country may pass its previous peak.
That is not an economy that is shrinking - or rather it could only be an economy that were shrinking were productivity plunging. That is improbable, given that these new jobs are entirely in the private sector.
Add in other data, such as rising car sales, reasonably strong retail sales, good tax receipts on VAT, and so on, and the picture emerges of an economy that must be growing, albeit slowly.
It is true that there are some labour market indicators that are going the wrong way: claimant count unemployment, probably the result of reclassification for people with disability claims, youth unemployment, and jobs for UK-born people as opposed to foreign-born ones. But these reflect wider social issues, serious ones to be sure, rather than telling us much about the economy.
This theme, that the GDP figures are wrong as they understate real growth, will be a familiar one to readers of these pages.
But I had not realised quite how wrong previous data had been until I had another look at the scale of upward revisions that have been coming through almost unnoticed, including a batch last month.
The UK economy is now reckoned to be substantially larger than in previous estimates.
The biggest revisions, going right back to the 1970s, came through late last year, but we have just had another set further upgrading growth numbers. Taken together, these suggest that our economy is now around 4% larger than was estimated a year ago ... yup, 4%.
If you take in early revisions, the understatement was even larger.
That leads to a final point.
If you are interested in living standards, it is GDP per head that matters most.
If you are interested in whether we can service the national debt, overall GDP and a growing workforce matter more.