Yes, Britain Really Is In A Double Dip Recession
Just as I expected, today's preliminary GDP number from Britain showed that it has entered a double dip recession as GDP has fallen two quarters in a row, by 0.2% in Q1 2012 following a 0.3% drop in Q4 2011. Compared to a year earlier, real GDP was unchanged and compared to 4 years earlier, it is down by 4.3% If you take population growth into account, the numbers are even weaker.
Some have questioned the accuracy of the data, claiming that employment data and various "surveys" give a brighter picture. Starting with the employment data, it is true that they show an increase in the number of employed, but they also show a big drop in real wages, with average weekly earnings increasing only 1.1% from a year earlier, which given the 3.5% inflation rate implies a drop of 2.4% in real terms. Aggregate real labor income is thus in fact falling even more than GDP, so these data do not paint a brighter picture of the U.K. economy.
As for the surveys, it is true that they generally give a stronger picture, but since they are only just surveys of a small number of people, one should view them with even greater suspicion than other data.
One form of really hard data that is almost certain (assuming the government don't deliberately distort like they did in Greece), tax revenue, confirms that there is a recession, as tax revenues only rose in nominal terms by 1.3%, a real decline of more than 2% despite the fact that the first quarter was 1 day (February 29) longer this year compared to last year.
It is possible that to a small extent this weakness was the result of falling inequality (in a progressive tax system, tax revenues increase/decrease more than GDP if inequality increases/decreases), but since all revenue sources increased less than inflation for the quarter as a whole, that is at most only a minor factor.
Some have questioned the accuracy of the data, claiming that employment data and various "surveys" give a brighter picture. Starting with the employment data, it is true that they show an increase in the number of employed, but they also show a big drop in real wages, with average weekly earnings increasing only 1.1% from a year earlier, which given the 3.5% inflation rate implies a drop of 2.4% in real terms. Aggregate real labor income is thus in fact falling even more than GDP, so these data do not paint a brighter picture of the U.K. economy.
As for the surveys, it is true that they generally give a stronger picture, but since they are only just surveys of a small number of people, one should view them with even greater suspicion than other data.
One form of really hard data that is almost certain (assuming the government don't deliberately distort like they did in Greece), tax revenue, confirms that there is a recession, as tax revenues only rose in nominal terms by 1.3%, a real decline of more than 2% despite the fact that the first quarter was 1 day (February 29) longer this year compared to last year.
It is possible that to a small extent this weakness was the result of falling inequality (in a progressive tax system, tax revenues increase/decrease more than GDP if inequality increases/decreases), but since all revenue sources increased less than inflation for the quarter as a whole, that is at most only a minor factor.
posted by stefankarlsson at 3:09 PM
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