One swallow

The ONS has some good news about UK industrial production. Here are the summary points from its statement:
  • Production output rose by 0.6% between Q1 2013 and Q2 2013. Manufacturing rose by 0.7% over the same period.
  • By far the largest contribution to the quarterly growth in production came from manufacturing, which increased by 0.7% following a decline of 0.2% in Q1 2013.
  • Looking at the broader picture, production output was 1.2% higher in June 2013 compared with June 2012, reflecting a 2.0% rise in manufacturing; 7.8% rise in water supply, sewerage & waste management; 4.4% fall in mining & quarrying; and 3.3% fall in electricity, gas steam & air conditioning.
  • Production rose by 1.1% between May 2013 and June 2013. Manufacturing rose by 1.9% with reported rises in all of its sectors. The highest contributor to the rise was the manufacturing of transport equipment, which rose by 5.3% and contributed 0.7 percentage points to the rise in manufacturing.
  • The preliminary estimate of GDP, published on 25 June 2013, contained a forecasted rise of 0.6% for production in Q2 2013. This release of data also estimates production rose by 0.6% between Q1 2013 and Q2 2013 and therefore has no impact on the previously published Q2 2013 GDP estimate.
Looks great, doesn't it? I must admit, I was impressed:

Fortunately someone was sharper than me:



It seems things aren't quite as rosy as ONS implies. Production is actually significantly below where it was in the same quarter a year ago. The "good news" is only an improvement in one month's figures.

But in fact it's much worse than that. This chart from the ONS's release shows how far UK industrial production has fallen since the financial crisis (larger version here):




















What appals me about this chart is not the collapse of production in 2007/8, awful though is, but the fall in production since 2010. Even with the upturn, total production is now below the level that it was in the 2009 recession, and manufacturing has also fallen significantly since 2011. There must have been some kind of serious negative shock to production in 2010/11 to cause such significant falls. 

I have previously argued that double-digit inflation in domestic and industrial energy prices delivered a significant supply-side shock to the economy in the last quarter of 2010 and thereafter. I suggest that this chart supports my case, although others have alternative explanations.

However, whatever the cause of the evident shock to production in 2010/11, the fact remains that UK production is way below even its 2010 level, let alone its level prior to the financial crisis. The slight upturn this month, while encouraging, is certainly not the "UK recovery" that is being trumpeted. There must be a much more substantial and sustained rise in both manufacturing and production indices before we can really claim that that the UK economy is on the mend. There is still an awfully long way to go. 

One swallow does not make a summer. And one month's good production figures do not make a recovery.


Related links:
Index of production, June 2013 - ONS
What derailed the UK recovery? - Coppola Comment
How Mervyn King lost the battle of Britain's banks - Simon Nixon, WSJ
Austerity pushes UK economy towards triple-dip recession - Think Progress (Jan 2013)

Comments

  1. Thanks - the proof that one swallow does not make a summer is amusingly CONTAINED WITHIN THE CHART ITSELF - look what followed the month-on-month uptick in ~2012Q2~ (or the little uptick in 2007Q3, for that matter).

    The trend since 2010 remains firmly downwards as far as I am concerned. Glad you have emphasised that "total production is now below the level that it was in the 2009 recession".

    I'll adjust my view when we get production figures rising three months in a row, or getting close to the 2010 level. Till then, best to work on the assumption that the downward trend will continue, with occasional upticks...

    ReplyDelete
  2. It will be interesting to see if lower energy costs help the USA to grow more quickly now, compared to our de-carbonising and moribund economy.

    ReplyDelete
  3. The UK media don't do percentages. If you took a BBC news reader, cut off their arms and then gave them one back a few minutes later they'd thank you for a 50% increase in limbs!

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  4. If you read a little more through the entire pdf you can see that oil & gas is still the real drag, manufacturing pick up looks credible and capital investment has some traction which is very good news. Overlay PMIs and you have a recovery story.

    If you look at GDP ex and incl oil & gas you get a far rosier picture too.

    One swallow doesn't you much but there are a few flying around

    ReplyDelete
  5. Nick's point about excluding the oil & gas sector is a sound one.

    I'd also mention that it is a little odd to be discussing an economic recovery and only focusing on industrial production with no mention of the very much larger, and healthier (back above 2007 highs), service sector.

    ReplyDelete
    Replies
    1. This post is specifically about the ONS's industrial production report. I know the service sector is doing better. But industrial production matters too and it still has a very long way to go before it can really be said to be recovering. I am warning about premature celebration.

      Delete
  6. The UK media don't do percentages. If you took a BBC news reader, cut off their arms and then gave them one back a few minutes later they'd thank you for a 50% increase in limbs!sbobetedudartwebfanthinksound...!!!

    ReplyDelete

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