Tuesday, January 12, 2016

The latest industrial production statistics indicate continued growth in production. Compared with a year earlier, production in November 2015 was a little under 1% higher. This is, however, in spite of a large fall of 1.3% in manufacturing - the largest component of industrial production. This fall was compensated for by a substantial increase in other sectors, notably including oil and gas extraction.

I have regularly used these statistics to provide forecasts using a simple neural network programme. The latest forecasts, with the red line looking ahead 24 months, appear below. They continue to evidence some fragility in the production sector, with a dip in overall output over the coming period looking increasingly likely.

Wednesday, December 16, 2015

The labour market statistics released today present a very rosy picture of the continuing recovery. Unemployment is down sharply, by 110000, to 5.2%. The gains in employment have been spread across various groups - with marked increase in the numbers of full-time employees (up 80000), part-time employees (up 66000) and full-time self-employed workers (up 75000). The largest gains have been in construction (up 77000 over the three months to September), but there have also been large gains in professional, scientific and technical services, and in administrative services.

After a subdued period earlier in the year, vacancies are now once again on the rise. This provides further evidence of a reinvigorated labour market.

On pay, the story remains subdued, however - indeed, increasingly so. Total pay in October averaged just 1.9% higher than a year earlier, this figure being down from 2.1% in September. In construction, however, reflecting the recent rapid expansion of the sector, pay has continued to steam ahead - at a remarkable 6.6%.

The overall picture, then, indicates health development. The main question mark surrounds how pay can be nudged up so that workers feel the benefit of recovery. The hike in the minimum wage will, at least in a mechanical way, help, but the real issue remains one of improving productivity.

Thursday, December 03, 2015

Recent debate surrounding the UK's participation in the Syrian conflict has brought to the surface some interesting views about the motives of politicians making key decisions. Some argue that politicians have a vested interest in fostering conflict and hence boosting the defence related industries. 'Follow the money' has become a favourite phrase of the cynics.

Serious literature of relevance to this has produced ambiguous findings, but most reliable estimates range from a negative through a negligible effect of military spending on economic growth. So the view that, as a general rule, a politician might vote for war if standing to benefit from ownership of defence related companies ignores the fact that the same politician would be better off owning a broad portfolio and voting against conflict.

There has doubtless been much wrong about the way in which the West has dealt with the situation in the Middle East. For sure, the web of alliances that has been woven is tangled indeed. But some of the wilder and more cynical views currently doing the rounds belong in the world of conspiracy theories - and as such are much less convincing than cock-up as explanations of what we observe.

Thursday, November 26, 2015

The Chancellor of the Exchequer has been widely lauded for pulling rabbits out of a hat in his Autumn Statement. For sure, the familiar conjuring trick requires admirable sleight of hand, and the Statement has evidence aplenty of that.

The headlines in today's newspapers suggest that austerity has ended. The figures do not quite align with that view, but the extent of cutbacks at least appears to have moderated somewhat. The Chancellor's largesse, or what some have termed 'less awfulness', has been enabled by four things.

First, he has been helped by a forecast boost to the public finances. The £27 billion windfall is spread over a 5 year period and therefore represents a relatively small proportion of the gap that the Chancellor wishes to close. In any event, economic developments over the coming period may make the saving somewhat softer than it at first appears.

Secondly, the implementation of the welfare cap - part of the Chancellor's famous and ill-conceived fiscal charter - has been delayed in order to reverse the decision to cut tax credits.

Thirdly, several charges best interpreted as stealth taxes have been introduced. This includes a levy on businesses to pay for apprenticeships and the introduction of a scheme that will allow local councils to raise their taxes by 2% to pay for costs of social care. These things are certainly desirable, and the changes are welcome inasmuch as they secure continued services - but the Chancellor has nonetheless shifted the cost from central government to other payers. As far as the public is concerned, this takes with one hand what is given with the other.

Fourthly, the Chancellor has coonverted several grants schemes - in the areas of business support, health training, and further and higher education - into loans schemes. Again this may allow central government taxes to stay low, but the costs must nevertheless be paid.

In sum, therefore, this was a very clever Autumn Statment. The Chancellor certainly did succeed in pulling rabbits out of hats. But a wise audience knows that - just as is typically the case with magicians - he has made liberal use of smoke and mirrors.

Wednesday, November 11, 2015

The latest labour market statisitcs paint something of a puzzling picture. There has, over the last quarter, been a substantial fall in unemployment - the figure for July through September is 103000 lower than in the previous three months. That is clearly good news.

But when we come to look at where the gains have come, the picture is distinctly mixed. There has been a huge increase of 177000 in employment. Most of this, however, some 145000, is in part-time jobs. The age distribution of the gains in employment is also a feature of the data - all the gain is observed in the older age group, 50 years of age and above. Consistent with the employment gains being concentrated in part-time work, average hours worked have continued to fall.

The news on pay is also indicative of a market that has started to slow. Comparing weekly earnings in September 2015 with those a year earlier, pay growth slowed to 2.0% (from 3.2% last month). It is difficult to attribute this to any sector-specific factors - the slowdown appears to be fairly even across industries.

In sum, the news on the unemployment rate is, at first blush, something that should offer good cheer, but the underlying figures offer very little comfort.

Friday, November 06, 2015

The latest statistics on industrial production have been released, and confirm that output in the production industries has continued to grow in the year to September. The forecasts of my neural network model for this series continues, however, to suggest that caution is warranted in interpreting recent growth as a harbinger of continued expansion. A dip is due. That may not carry over into the (much larger) part of the economy that is based in services, but, particularly at a time when global demand appears to be weakening, we should be wary of overoptimism.

Wednesday, October 07, 2015

The latest industrial production statistics have been released, and show growth of 1.9% over the year to August. The seasonally adjusted figures also show an increase of almost 1% over the month. This seems very encouraging.

Applying my neural network forecasting model to these data suggests that the recovery in industrial production may continue for a few months, but there are warning signs that it may not be sustained beyond that.

The model on which these forecasts are based is very simple and does not include information about policies that are known to be in the offing. We know, however, that fiscal retrenchment is set to toughen over the coming period. These forecasts suggest that the economy, looking ahead, is somewhat more fragile than it has been over the last year, and that caution should be exercised in judging the desirable speed of further fiscal contraction.