Tuesday, May 01, 2012
Some interesting numbers
Posted by David Smith at 12:00 PM
Category: Thoughts and responses

After the purchasing managers' surveys flagged up decent growth in the first quarter, maybe we should not be too worried about a drop in the manufacturing purchasing managers' index from 51.9 in March to 50.5 in April. Nonetheless it is disappointing, suggesting a weakening of growth momentum.

Anyway, I have been looking at the GDP figures again. Why is growth so weak? Is it the cuts? Take a look at P23 of the quarterly national accounts, here (click on the pdf), and you see that it would be wrong to blame government "cuts" for reducing growth.

In 2010 government spending made a small contribution to growth, 0.3 percentage points, while in 2011 it was zero. That is not quite the full story. Labour's boost to public sector capital spending made a contribution to growth in 2010, though the deep capital spending cuts it bequeathed to the coalition reduced spending in 2011.

The biggest contribution to growth in 2010, however, was stockbuilding, which can only ever be a temporary factor. There were two big shifts between 2010 and 2011, one good, one bad. The good one was that net trade, having subtracted 0.5 points from growth in 2010, contributed a full percentage point in 2011.

The bad was that consumer spending, having contributed 0.8 points to growth in 2010, subtracted 0.7 points in 2011. Some of that was the VAT and National Insurance hikes. Mostly it was the real income squeeze from other sources of high inflation.