Friday, January 11, 2013
Weak industry will drag on GDP
Posted by David Smith at 12:00 PM
Category: Thoughts and responses

Industrial production in Britain is weak, down 2.4% in November compared with a year earlier, with manufacturing down 2.1%. The details are here. The question is whether it is weak enough to produce a negative reading for gross domestic product in the fourth quarter.

In November alone, industrial production rose by 0.3% month on month, thanks to a recovery in North Sea oil and gas output but manufacturing was down by 0.3% and domestic energy supply by 4.1%. This leaves the arithmetic for industrial production in the fourth quarter looking very tricky.

Taking October and November together, industrial production is a huge 2.3% down on the third quarter average. It would take an implausibly large rise in December for industrial production, 15.6% of GDP, not to be a drag on GDP.

There is slightly better news for construction, which may make a small contribution to growth in the fourth quarter. Though output fell by 3.4% in November, according to figures also released today, a strong rise in October means the two months together are 4.2% above the third quarter average on a non-seasonally adjusted basis. More on that here.

Even so, the onus will be on services to prevent a fourth quarter GDP fall. Here, we're more or less in the dark. The only hard number we have is for October, which was very similar to the third quarter average. We won't know more until January 25, when the GDP first estimate is released.