Thursday
Jan092014

What's happening with business investment?

On January 1st the FT published a survey of several economics commentators. It's an interesting read and worth spending some time on. One thing that many people mentioned was the role of business investment. The general consensus seems to be that business investment is expected to pick up again in mid 2014, and this is necessary for a sustained recovery. 

I've been attempting to update the "private investment" indicator that Kaleidic Economics publishes, and trying to come to terms with changes in how the ONS report the data. I'm a bit confused, and will look at it again later. But in the meantime I thought I would just focus on business investment alone. 

Firstly, consider the quarterly growth rate:

Business investment is volatile, and to get a clearer picture we can instead look at the quarterly growth rate compared to the same quarter of the previous year:

The dramatic decline in 2009 is evident, as is a spluttering rebound with recent figures being very weak. Perhaps the slight upturn we see in Q3 2013, together with more optimistic GDP forecasts for early 2014, will result in increased business investment. But what constitutes a normal rate? The chart below takes it back to 2002. 

It isn't clear what an appropriate growth rate should be, for a balanced economy. Indeed the chart below shows the absolute numbers, with the red line denoting the median level. So what are we waiting for?

Thursday
Jan092014

Transport equipment volatility

The chart below shows investment in "Transport equipment" from 2007 to Q3 2013. It is a lot more volatile than it has been previously, with an especially large increase in Q4 2012. 

 

Here's the raw numbers, showing that the spike in growth rate is the result of being at a low base. This is because of a large decline from Q4 2010 to Q1 2011. 

Does anyone know the detail as to what was driving this?

Saturday
Dec212013

UK unemployment

There's lots of talk that UK unemployment is falling faster than expected, and the Bank of England have brought forward their forecast that it will first fall below 7% from 2016 to 2014. As the chart below shows the rate has steadily fallen since late 2011.

But this is also a nice exercise in the importance of time frame. Here's the same data from February 2009 (i.e. the month in which it went above 7% for the first time)

And here it is going back the last decade

 

I'm using UK unemployment rate aged 16+ (series code MGSX)

Friday
Dec062013

MA takes off

A belated update of MA reveals that the money supply in October jumped to a growth rate of 12.99% (compared to October 2012). The growth rate had been consistently between 7% and 8% since April 2013. This gives further evidence that the UK economy is picking up speed, and perhaps too much. More details in the data section.

(For some reason Google Drive seems unable to show charts, so I've copy and pasted the data into Excel and saved this as an image.)

 

Tuesday
Sep102013

The Yakiniku recovery

Last week saw the 9th quarterly meeting of Kaleidic Economics, and the topic was low growth scenarios, with a particular focus on Japan. 

In the paper we discuss the conflicting debates about the extent to which "the lost decade" is a myth, and whether this is a result of too much, or too little, policy response. The table below shows some typical literature, and interestingly demonstrates that even within the scame school of thought, there are differences of opinion.

 

Policy response

Loose

Tight

Lost decade?

Myth

(i)

?

(ii)

Kelly (2011)

Krugman (2013)?

Reality

(iii)

Powell (2002)

Shostak (2013)

(iv)

Krugman (1998)

Greenwood (2006)

 

Readers may also be interested in the chart showing Japanese GDP per capita relative to Germany, throughout the so-called lost decade [via http://www.tradingeconomics.com/]:

You can read the full report here.