Wednesday’s GDP figures are likely going to show either record annual growth or at least the best for over 50 years.
And to a large extent it will be meaningless. The figures will do little than provide a look in the rear vision mirror at an economy before New South Wales and Victoria went into lockdown and which only looks good when we compare things with the worst of 2020.
There is always a lot wrong with the GDP figure. Aside from the line from Robert F Kennedy that “it measures everything in short, except that which makes life worthwhile”, it is always a look at the past, and the figures don’t mean a great deal for our daily lives until they get broken down into small chunks dealing with households.
But tomorrow we will be hit with a problem that comes from how we measure the growth. Generally, we care about two measurements – quarterly and annual growth.
Quarterly growth is pretty simple – how much the economy increased in the particular quarter. Right now, the estimates for growth in the June quarter are rather weak – some economists even suggest the economy might have shrunk.
That obviously would be a terrible thing, because the June quarter includes April, May and June – three months where things were certainly going better than they have been in July and August.
But even if there is zero growth in the June quarter, we will have a weird quirk where the annual growth figure will explode – up to more than 8%, which would be the strongest annual growth since 1967:
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The reason is because the “annual” growth figure is technically just year-on-year growth. We compare a quarter this year with the corresponding quarter last year.
And the June quarter last year had the biggest fall ever recorded.
Thus, without April, May and June being any better than was the case in the first three months of this year, “annual growth” is going to soar purely because June 2020 was much worse than March 2020.
The other problem with all this analysis of the economy is at some point you just have to throw up your hands and adopt William Goldman’s adage about the movie business and say “nobody knows anything”.
Take retail trade. It is normally a nice, steady industry. Yes, turnover will occasionally fall, but as a rule it goes up a little bit each month (around 0.5%) and there isn’t a lot to get too excited about.
And yet in July retail trade fell 2.7%.
But here’s the weird thing – it was barely even news.
Prior to the pandemic it would have been the biggest one-month fall ever recorded (not including the introduction of the GST in 2001). And yet it is just the fourth biggest fall since the pandemic hit and only the ninth biggest movement up or down in that period:
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Does anyone really want to suggest they “saw that coming” and can tell you what will happen in three months, or six months, or a year’s time?
Last week, the latest figures for private new capital expenditure were released. This measures the new investment by companies on things such as roads, buildings and machinery.
The figures also contained the third estimate for how much companies believe they will spend on investment in the 2021-22 financial year.
There was a solid 15% increase on the second estimate for 2021-22 made three months ago. It was also the first of the three estimates that predicts more spending by the non-mining sector this financial year than in 2019-20:
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That’s obviously a good thing. But those estimates were made when NSW was still having fewer than 200 cases a day. You must wonder how changed they would be now there are more than 1,200 cases, and if the current exponential trend continues and they are up to 7,500 in a month:
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I suspect (hope) we won’t get to that level. I have seen estimates that a peak of just below 3,000 a day is more likely given current vaccination rates – but it highlights the precarious nature of prediction at this time.
And so we await Wednesday’s GDP figures. If they fall, there will inevitably be talk about a “technical recession” because the current quarter we are in seems all but guaranteed to see GDP go backwards and that would mean two consecutive quarters of negative growth.
If they rise, there will be talk about whether we have avoided a recession.
But so erratic and confused are things right now the best thing might be to acknowledge that rarely has anyone lived though such a time of uncertainty, where judging performance either good or bad on the basis of three months of economic data is rather a foolish thing to do.
