Better news on construction… continuing fall in jobless and rise in numbers employed across the UK… a sharp drop in the trade deficit… Might we be seeing, sprouting from the scorched earth of the UK economy, the first green shoots of recovery?
Cue ribald laughter and cynical hoots of derision from the bien pensants and the policy elite.
Is not unemployment continuing to rise in Scotland? And retail sales struggling? And public spending still being cut? Have not the Bank of England and the OECD abandoned hope of any growth at all in the economy this year?
I remember the deluge of derision that greeted Norman Lamont’s sighting of “the green shoots of recovery” in October 1991.Having scanned CBI and Institute of Directors business surveys, “what we are seeing”. he declared, “is the return of that vital ingredient – confidence. The Green shoots of economic spring are appearing once again.”
Back then, many thought he’d lost his marbles… or worse. It didn’t help that after the ERM debacle the following September he was quoted as saying that he was “singing in the bath”.
Certainly evidence of recovery in late 1991 was scant and the signals from economists ambiguous - as ever.
But Gavyn Davies, then chief economist at Goldman Sachs, subsequently wrote that the "Green shoots" speech had turned out to be "remarkably prescient. From that moment onwards, output stopped declining, and within a few months, it started to rise”.
Estimates of Gross Domestic Product show the trough of the recession occurring in the fourth quarter of 1991, with sustained growth resuming in the third quarter of 1992, when GDP grew 0.4 per cent compared to the second quarter.
Might we now be in similar terrain – the economy struggling to record any growth but here and there intriguing signs of improvement?
After all, last week saw the Paris-based Organisation for Economic Co-operation and Development (OECD) point to “tentative signs” that UK growth was picking up.
The problem now – as it was back in 1991-1992 - is that encouraging data one month is often contradicted by a relapse the next. Pinning the exact month when the economy turned the corner could take a year or more to calculate with certainty, particularly when allowances are made for revisions.
But here are three recent pointers suggesting the economy may be on the turn:
ONE: official figures last week showed a quarterly rise in employment across the UK of 236,000 to 29.56 million, close to its pre-recession peak. While it’s certainly true that the composition of the labour market has changed, with a drop in full-time workers and a rise in part-time staff, nevertheless these were good numbers for an economy which on official measure is mired in recession. Moreover, these figures were not a rogue “one-off” but followed similar encouraging numbers of falling unemployment for most of the year to date.
That Scotland did not share in this improvement may be due to a relatively smaller private sector where job growth has been evident. In the past three years the private sector has added 1.36 million jobs UK-wide while the public sector has cut 689,000. And Scotland has a bloated public sector.
TWO: The UK’s trade deficit with the rest of the world shrank from £4.3 billion in June to £1.5 billion in July. Particularly pleasing was the fall in the goods trade deficit from £10.1 billion to £7.1 billion, helped by a 9.3 per cent rise in exports. Might the great rebalancing of the UK be underway at last?
THREE: The 2.2% month-on-month rise in construction output in July provides a modest lift to third quarter growth prospects. It suggests, says Global Insight economist Howard Archer, that construction output will not be the major drag on GDP that it was through the first half of 2012. It opens up the possibility that the sector may even be able to achieve expansion over the third quarter.
Looking further ahead, the fall in inflation in recent months means that households should begin to enjoy a rise in real incomes next year. The Centre for Economics and Business Research calculates that poorer households with incomes should see a 1.5 per cent rise in their incomes; middle income households should see 1 per cent and richer households 0.7 per cent.
Arguably most important of all in the past week have been the announcements of the US Federal Reserve and the European Central Bank on major steps towards further monetary easing. The US Fed has committed to buying £$40 billion of mortgage debt a month until there is a sustainable recovery underway, and the ECB has been given the green light (albeit with conditions) by the German Constitutional Court for operations to stabilise Spanish and Italian government bonds.
Stock markets have risen sharply on these developments. To the extent that this is a reflection of attitudes across corporate UK, it may well have removed one of the biggest barriers to investment and expansion. Business confidence has been battered for more than 18 months by constant reportage of Euro-zone crises, Euro summits that didn’t work, fresh assaults on the Greek or Italian or Spanish sovereign debt markets, warnings of capital flight and currency collapse. Any let-up in this stream of misery would be a huge help for business in the months ahead.
Scot-buzz believes the UK economy is turning a corner and that we will see a gradual improvement going into 2013. So from this week we will be adding a ‘Green Shoots Watch’ as a regular item of our coverage. We will also, in fairness, note the disappointments too: ‘Brown-outs’?
Today’s Green Shoot is the improvement in the Bank of Scotland Labour Market Barometer from 50.2 in July to a three month high of 52.4 in August (50 indicates no change on the previous month).
The bank’s latest jobs report signalled a further fall in permanent placements last month. But temp. staff billings increased for the second month running.
Says Donald MacRae, chief economist at Bank of Scotland, “The Scottish labour market showed a welcome improvement with increases in temporary jobs and a rise in vacancies for both permanent and temporary jobs. However, appointments to permanent jobs fell for the second successive month illustrating the challenge of maintaining the overall trend of increasing employment. The Scottish economy is showing resilience in the face of the global slowdown.”