A political recession?

So, the UK is back in recession. Let’s all panic and head for the hills…
Or is it? There are four possible responses to today’s news that an initial estimate suggests the UK economy contracted by 0.2 per cent in the first three months of 2012.
One is political: government policy has failed and the coalition “cut too far and too fast”. The usual hot air, in other words.
The second is geographical: while London, the south and east have steamed ahead, the rest of the country never really climbed out of recession anyway (the further north you go, the more the economy becomes dependent on public money).
The third is scientific: quite a few economists and statisticians simply don’t believe the ONS figures because this general measure has been consistently at variance with what surveys about specific business sectors say. The ONS’s methodology may be a bit flawed.
The fourth is from business: how come the Office for National Statistics says the economy contracted 0.2 per cent when the Derbyshire & Nottinghamshire Chamber’s own survey of the same period said business had regained nearly everything it lost last year?
It really does pay to put the politics to one side, because in a climate like this it generates far more heat than light.
Not for the first time I should also point out that today’s figure is merely an initial estimate based on an analysis of only 40 per cent of the data which ultimately goes into a GDP figure. It will be revised at least three times, and for technical reasons the first quarter of a year is often harder to judge than others.
There is particular concern about the ONS’s assessment of the construction industry. It says weakness here is one of the key reasons for the fall back into recession. Yet the industry itself suggests the picture is not that bad.
And on the very same day that the ONS fingered weak manufacturing as another contributory factor for technical recession, the CBI said there were signs of a bounce back in manufacturing activity during the same period.
Indeed, the CBI has gone on record this morning with its usual diplomatic language, saying it is "surprised" by the ONS figures.
That's putting it mildly. There is a clear conflict between what the ONS is suggesting and what some industries are saying themselves.
Unarguable facts are that our economic recovery is very sluggish and geographically patchy: some sectors are doing better than others, some parts of the country are better than others, some of what we have lost won’t come back because the economy has changed, Eurozone economies still haven’t properly sorted their debt issues.
One more unarguable fact: businesses themselves are sick to the back teeth with supposed media ‘recession porn’ – an obsession with negative economic news.
So the fight over recession is largely political. As tough as it is, business is getting on with the job.

UK plc: a recession or a hiccup?

Today’s news that the UK’s GDP figures fell by 0.2 per cent in the last three months of 2011 will generate the usual stale, political hot air.
But I doubt it comes as any great surprise to anyone in business.
The GDP figure had already been comprehensively second-guessed by a series of business surveys which suggested that sentiment had been weakening from the summer onwards.
You have to attach the usual health warning to today’s number. This is actually an estimate from the Office for National Statistics based on its analysis of around 40 per cent of the data which goes into the GDP figure.
It will be revised at a later date, and past revisions have usually been upwards.
What’s behind the fall? A couple of interesting contributing factors – a mild winter has seen people turn down their heating, so electricity and gas production was down more than four per cent. November’s public sector strike – which took out the equivalent of a million working days – will also have nicked the number down a bit.
But they can’t hide falls in manufacturing, construction and a standstill in services, all of which tell a familiar story of weak demand in a cautious economy.
This is also a significant reverse on the third quarter of 2011, when the economy grew by 0.6 per cent. So the slowdown was a marked one.
There is no sign of any immediate improvement in this picture, and it won’t be in the least bit surprising if we see another negative number for the first three months of this year, especially with the continuing uncertainty in the eurozone – our main export market, don’t forget – acting as a drag on the global economy.
There are some optimistic chinks, though, and some of the sentiment I pick up from business people is that they’re getting pretty fed-up with the political doom-mongers.
Inflation is expected to continue falling this year, which should allow businesses to start rebuilding profit margins and consumers to feel like they’ve got a few quid spare. Tax changes for low and middle-income earners are likely to have a similar effect.
So the UK economy should get back on to a slow path to recovery in the second half of this year.
I’ll repeat a few salient points about where UK plc is right now: a swift recovery from a devastating financial crash was never likely because we are dealing not just with huge debts but the need to make structural change to an economy which has lost some activity permanently.
Our economy isn’t falling apart at the seams, because it is the sixth biggest in the world and has a welfare safety net which didn’t exist in the 1930s.
Businesses may be heartily sick of recession talk, but they’ll have to tolerate it for a few months yet. Nevertheless, this isn’t a return to the dark days of the crunch.

Youth unemployment: A shocking truth

A few thoughts on the political hot potato of youth unemployment.
To have more than a million 16-24 years olds not building up experience of work and contributing to the economy is pretty grim, whichever way you look at it.
History shows that the longer young people are out of work the more difficult it becomes to get them into the habit.
Grimmer still is the fact that the UK’s struggle to get school leavers through the workplace door appears to have been around for much longer than politicians would have you believe.
Buried away in the Office for National Statistics data published yesterday was an Excel spreadsheet which shows the path of youth unemployment since the last recession in the early 1990s.
In the early 90s recession, youth unemployment peaked at just over 900,000 in 1992. It then commenced a long, downward path as the economy gathered speed again, bottoming out at just over 500,000.
But that was in 2001. And the ONS’s figures show that while it has risen steeply since 2008, it was already on a marked upward path which had begun in 2003.
Between 2003 and 2007 it rose from under 600,000 to over 700,000. Right in the heart of the economic boom.
There is also a clear divide in these numbers, one which was also glossed over yesterday.
The unemployment rate among 16-17 year-olds (i.e., GCSE school leavers) hovered around the 20 per cent mark from the turn of the century and wasn’t much lower in the decade before that. Among 18-24 year olds (the A-level to college/university period), it fell from around 15 per cent to around 10 per cent before starting to edge up again from 2005 onwards.
I won’t pretend to know why it is that we’ve had an upward trend in youth joblessness that predates the crunch (though it might suggest when the true stresses in the economy first began to emerge), but there was an interesting contribution yesterday to the debate about solutions.
Derbyshire & Nottinghamshire Chamber of Commerce has been reporting for some time that its Quarterly Economic Surveys have been consistently flagging up a problem with the quality of young people turning up for job interviews.
The problem is that these job candidates lack both basic skills – literacy and numeracy – and an understanding of what it takes to hack it in the working world.
To cut to the chase, it’s suggesting that schools’ relentless focus on driving up exam results has missed a crucial element in the bigger picture of what makes a good employee: that attitude counts just as much as attainment.
The Chamber’s got to be careful that it isn’t accused of tarring all kids with the same brush and suggesting school leavers are a generation of feckless Facebook addicts.
That is a tabloid cliché which won’t help identify a solution.
I know that because the same day the unemployment figures came out, I spent the evening at the Nottingham Post’s inaugural Student Awards. It was an inspiring occasion, with young students from city schools and academies proudly receiving awards for a range of stunning achievement which covered everything from academic brilliance to community involvement and immense sporting and creative prowess.
So we should not lose sight of the fact that great things can and do happen in Nottingham’s schools.
But those ONS numbers point to an urgent and serious issue. The jobless rate among 16-17 year-olds has been rising relentlessly since the early part of the last decade, and is heading into territory which points to a fundamental failure underneath apparently improving educational attainment figures.
That points towards wasted lives and economic under-achievement
The Chamber says the Ofsted inspection regime for schools should be changed so that it also measures how good schools are at preparing people for the working world.
It may be a step in the right direction. But schools – and business – may need to make some giant leaps.