The economy has supposedly grown by 0.6%, but it’s worth digging a little deeper into those numbers
You know us at LondonlovesBusiness.com – we like to be positive. But we also need to be realistic about today’s GDP figures. The Office for National Statistics tells us the economy has grown by 0.6% in Q2 this year (April – June), compared with Q1 (January – March). We’re still 3.3% below our pre-recession peak, as ONS chief economist Joe Grice has pointed out today.
But before we even get into what’s driving that growth, let’s remember that these are just the preliminary estimates. The ONS reminds us that the figure out today could be subject to a “typically small” revision of 0.1-0.2%.
But a 0.2% revision to the 0.6% we’re hearing today is pretty significant, actually – if figures are revised by that much, we might have grown by a third less than we thought, or a third more.
Anyway, the statistical complexities of calculating GDP aside, let’s for the sake of this column take today’s data at face value.
The good news is that this is the first quarter since Q3 2010 that all four sectors that make up our economy have all grown together – that’s agriculture, production, construction and services.
It always strikes me as a bit odd, though, the way these four sectors seem to all be given equal importance to our economic growth by just about everybody.
Here’s why – and this is worth noting, I think. First off, the services sector completely dwarfs the other three. Services in fact contributed a whopping 0.48% of the GDP growth we’ve just seen (i.e. 80% of the total growth). The other three sectors combined only contributed 0.12% growth (i.e. 20% of the total growth).
In the last page of the ONS’s statistical bulletin on GDP data, you get a nifty little appendix that shows you how different sectors are weighted against each other, according to their gross value added. They were calculated in 2010, just FYI.
The ONS weights tell us that services make up 77.8% of our economy, which is why the uplift in services makes up such a whopping great chunk of the 0.6% total GDP growth.
Production is a much more measly 15.2% of our economy. Construction is just 6.3%, while agriculture (including forestry and fishing) is but 0.7%.
So it seems to me a little mad for us to talk about the four sectors of services, production, agriculture and construction as if they were comparable. Yes, it makes taxonomical sense to split them out that way in terms of the activities they involve. But I find it a bit misleading when reports on GDP data talk about uplifts in services and in construction in the same breath, as if they were both equally important to our overall economic growth, when in fact one of those sectors is more than 10 times more significant to economic growth than the other.
Anyway, let’s dig a bit deeper into the categories. Within services (and in fact overall), “business and financial services” is easily the biggest industry, accounting for 30.7% of GDP. It grew by 0.5% in Q2.
“Government and other services” is the next biggest (it’s also classified as part of services), at 22.5%, and grew by 0.1% in the same period.
As I’ve said before, I think our real unsung economic hero is “distribution, hotels and restaurants”, which is in fact the third biggest industry in our economy out of the 10 classified by the industry weights. It accounts for 13.8% of GDP, not to mention a huge amount of entry-level jobs, which are always helpful for, you know, those problems we seem to be having with unemployment and particularly youth unemployment. “Distribution, hotels and restaurants” happens to have been the second-fastest-growing sector in Q2 2013 too, as it grew by 1.5%.
The fastest-growing sector was in fact construction, at 1.8%.
When we come to production, manufacturing is by far and away the stand-out sector here, accounting for 10.4% of our total GDP, and so more than two thirds of the production sector as a whole. We need to be making stuff as well as servicing things and people to help balance our trade deficit and rebalance our economy, etc etc, which is why supporting manufacturing is always so high on the political agenda, despite it in fact only being the fifth biggest sector out of 10.
Are you still with me? Then well done geeks. You’re ready to start digging into this data yourself.
Here you go: http://www.ons.gov.uk/ons/dcp171778_319698.pdf
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