The Office for National Statistics (ONS) left its estimate of the change in GDP in the fourth quarter unrevised at -0.2% in today’s second release. The suggestion that the economy contracted is at odds with an above 50 reading of the purchasing managers’ composite output index as well as resilient labour market indicators and could be explained by a larger-than-usual fall in working days between the third and fourth quarters – see previous post. (The ONS does not apply a working day adjustment to quarterly GDP, although some of the monthly input variables are corrected.)
The apparent conflict between the GDP number and PMI / labour market data is reminiscent of the third quarter of 2009 – the quarterly GDP change was initially estimated at -0.4% but has subsequently been revised to +0.2%.
A monthly GDP estimate calculated from data on services, industrial and construction output (99% of the economy) was 0.05% above its fourth-quarter average in December, implying marginally positive carry-over into 2012 – see chart. The services sector ended the year solidly, with December output 0.3% above the fourth-quarter average and “only” 1.7% below a peak reached in November 2007.
The expenditure breakdown reveals a “surprise” 0.5% rise in household consumption last quarter after a 0.1% third-quarter decline. This confirms, belatedly, an assessment here last May that consumer prospects were improving, in contrast to media and MPC gloom at the time. The recovery appears to have continued in early 2012, with January retail sales volume 1.5% above the fourth-quarter average.
GDP weakness reflected a 5.6% fall in business fixed investment and lower stockbuilding. Investment figures are often revised heavily and the scale of the decline is difficult to square with a 1.7% rise in import volumes of capital goods last quarter.
The view here remains that the economy is pulling out of a “soft patch” that has been exaggerated by GDP data and media reporting, with a recession unlikely barring a negative external shock.