by Lemondy on August 8, 2011
Many in the UK media have emphasised the “weak” domestic recovery, particularly drawing a comparison to that of the US. The US GDP figures released in the second quarter of 2011 contained some painful revisions, however.
By looking at nominal GDP, we can ignore the split between inflation and “real” growth, which has not been favourable for the UK . Here’s the comparison of nominal GDP with the US (using the revised figures), taking the second quarter of 2008 as the “peak” month before the downward slide began:
US and UK Nominal GDP (Rebased to 100 at 2008 Q2)
The fall in UK nominal GDP was significantly worse than in the US. Despite this, by the first quarter of 2011, the UK had just managed to inch ahead; a stronger nominal recovery. (Second quarter 2011 UK figures have yet to be published.)
by Mr Tickle on August 5, 2011
Here’s a cool graph from Dr Ed’s blog showing how far gold has come back into favour versus stocks, as people have sworn off the future:
American confidence - in the golden brown
Dr Ed write:
In the chart above, you can see that there is a long-term inverse correlation between the P/E versus the inflation-adjusted price of gold, which is approaching the record high of $866 per ounce during January 1980, when Carter was President. This does not bode well for the valuation multiple. The real price of gold was $682 during June. To match the 1980 peak on an inflation-adjusted basis, it would have to rise over $2,500 in current dollars. If it gets there, odds are that the P/E will be lower.
(Source: Dr Ed’s blog)
by Lemondy on August 4, 2011
That might not be a headline you’ve read recently, but it is nonetheless true. Since the newly-formed Office for Budget Responsibility gave a Pre-Budget report in June 2010, the forecast for nominal GDP growth in 2011 has improved from 4.2% to 4.8%. This graph shows how the forecast for GDP growth in 2011 has changed, with the breakdown into real growth and the appropriate measure of inflation, the GDP deflator. The sum of these two gives the growth in nominal GDP.
Forecasts for 2011 GDP Growth. Source: OBR
The never-ending complaints that “fiscal austerity” have caused the economy to “stall” seem to be at odds with this graph. The forecast level of actual (that is, nominal) spending in the UK economy this year has been revised up – not down. That the deflator also got revised up is no doubt in part a result of the VAT rise, but it would surely be foolish to ignore the effects of a 40% rise in commodity prices over the last year:
S&P GSCI (Commodity Price Index)
by Lemondy on August 3, 2011
In the last four years, the size of the UK gilt market has increased from £444bn (2007) to a whopping £991n. Part of this is capital appreciation… most of it is new gilt issuance. So who bought all those new gilts?
This graph gives us a good idea, though the ONS data on the breakdown of gilt holdings is by market value, rather than nominal value; so capital appreciation also counts as an increase in the value of gilts held:
Change in Gilt Holdings between 2007Q1 and 2011Q1, by Owner, £bn. Source: ONS
The bulk of net new investment in gilts over the last four years has come from the Bank of England’s £200bn QE program, foreign investors, and domestic banks.
by Lemondy on July 7, 2011
Inspired by looking at the implied deflator of retail sales in a previous post, let’s compare and contrast a similar index – UK goods prices as measured by RPI – with UK house prices, since 1997:
This graph “cheats” a little by using split scales; masking the fact that house prices rose by an annualised rate of 7.7% between 1997 and 2011, whereas the annualised rise in goods prices was only 1.7%.
The media narrative would have us believe all of the following are true:
- the huge rise in house prices up to 2007 was “bad”
- flat house prices since 2007 is “bad”
- rising goods prices now is “bad”
Yet, curiously, it is hard to remember anybody complaining about the long period of flat goods prices (the “imported” inflation from China et al).
by Lemondy on July 5, 2011
Something strange happened during the last recession:
British consumers discovered… Internet shopping! If you ever wonder about what happened to Woolworths, or MFI, or Habitat, or Thorntons… remember that graph.
“Non-Store Retailing”, as the Office For National Statistics likes to call the sector, now accounts for 9.4% of retail sales (excluding petrol). This is up from a mere 3% at the beginning of 2007.
The catalyst for this shift may be simple: consumers on tighter budgets want better value for money, and the on-line stores can – literally – deliver. The “implied deflator” is a measure of inflation used in the ONS statistics which reflects changes in volume of sales relative to changes in prices:
Even after nearly a decade of stagnant retail prices, it would seem that on-line retailers are, in aggregate, still managing to keep prices under control.
by Lemondy on July 3, 2011
Another six months pass with the consensus of the UK’s chattering classes still forecasting doom and gloom, with particular concern for the future of the Eurozone and domestic “stagflation”, not to mention the odd war or nuclear disaster.
It may then surprise some to discover that Europe’s stockmarkets have produced the best return available for holders of UK unit trusts – and second only to the continued success of UK smallcaps:
Percentage return to UK Unit trust sectors, 6 months to July 2011
With the horrific damage inflicted on the Japanese population – and economy – by natural forces, it is sadly no surprise to see Japan languishing at the bottom of this table. The significant underperformance of the Emerging Markets relative to the established Western markets is a break with the tradition of the last few years, however.
The other notable result here must the strength of UK index-linked gilts, especially relative to conventional gilts. ‘Linkers‘ would be the ideal asset to buy if expecting a period of low growth and high inflation, so maybe Mr Market does share at least some of the newspapers’ consensus gloom.
by Mr Tickle on March 23, 2011
Precious little detail on the FirstBuy first-time buyer scheme so far, but it seems designed partly to prop up the housing market:
The new FirstBuy scheme will provide a £250 million fund to help first-time buyers get on the housing ladder, via a shared equity arrangement. It will be jointly funded by the housebuilders.
Osborne claims FirstBuy will help 10,000 first-time buyers, which is non-trivial in a market where only 43,000 or so mortgages were approved in February 2011 – way down from the 80,000 or so that was previously seen as required for stability in the housing market.
(Source: Monevator)
by Mr Tickle on September 20, 2010
Okay, so we know equities have had a bad decade. But if you look at the following graph of ten-year asset class returns and think “I’ll shun shares an invest in government bonds and gold” then slowly put down your PC and walk away from your online dealing account…
(Source: Business Insider)
by Mr Tickle on September 15, 2010
More solid data on the UK economy. Reuters reports:
Wednesday’s labour market report contained some encouraging aspects. The number of people in work rose by a record 286,000 in the three months to July.
But like much of the media, it prefers to lead with the gloomy angle:
The number of Britons claiming jobless benefit rose last month for the first time since January, raising fears the recovery could be faltering even before the bulk of public spending cuts kick in.
The Office for National Statistics said claimant count unemployment rose by 2,300 in August, confounding expectations for a modest decline and bringing to an end a six-month period in which it had fallen by more than 150,000.
No, it’s good news chaps. Unemployment is a lagging indicator, remember?
What has happened is due to the continuing job creation, more people have returned to the job arena instead of going on gap years or pretending to have one leg, but not quite enough have found work to keep reducing unemployment, despite employment going up by nearly 300,000.
A more valid complaint is that a fair few of the new jobs were part-time. But it’s a start.
Bottom line: The UK recovery remains on track, but you wouldn’t know it from reading the papers this year.
(Source: Reuters)
