Total Output grew by 2.17% in 2012

October 31st saw the belated release of the 2014 Input-Output Supply and Use Data. This is important because it incorporates a larger amount of economic activity than GDP data, but comes at the cost of only appearing as an annual series, and with an 18 month (or longer) lag. The diagram below shows the breakdown of the measure for 1997:

I've previously mentioned that Gross Output data is now an official BEA statistic, and I am interested in seeing equivelent figures for the UK. Here they are.

Firstly, in terms of absolute numbers, we can see that Total Output dwarfs Nominal GDP. 

In fact Total Output is around twice as large as Nominal GDP:

The reduction in the ratio that occured in 2002-2005 is a result of Nominal GDP growth running ahead of Total Output growth. But notice the dramatic increase in the ratio in 2006. This was because Nominal GDP was growing at 5.81%, whilst Total Output grew at 8.73%. This reveals that economic activity was running at a significantly higher pace than a focus on GDP data was telling us:

One of the main reasons why the September revisions to GDP had such an impact was because of a reclassification of R&D spending. This rests on a conceptual problem with distinguishing between investment and intermediate consumption. As more and more economic activity becomes service based we might expect this problem to grow over time. One of the chief benefits of using a broader measure of national income is that it captures all intermediate consumption, and therefore the boundary between intermediate and final consumption/investment becomes less relevent. 

These figures reveal that in 2010 and 2011 the wider economy was growing at a higher rate than that being measured by GDP, and in 2012 they were effectively the same. It is very difficult to read much into these annual growth rates, given that there is likely to be a lot of quarterly volatility. But in the same way that the US have started releasing this as a quarterly series, there would be much to gain from the ONS doing likewise.


The Monetary Situation

We are delighted to publish an extensive overview of the current state of the UK economy. You can download a free PDF here, or see a powerpoint version below. The report was compiled for the October meeting of the Shadow Monetary Policy Committee, and includes background data as well as a more detailed look at impending threats from the Eurozone and China. 



MAex grows at 8.67% in August 

MAex shows continued growth of around 9%, using updated figures. It has now been within a band of 8.7% - 10.9% since February 2013.


The Bank of England annoy me

I'm in the process of writing a guide to UK monetary policy, and thought I'd take a look at the material the Bank provide for participants of their Target 2.0 competition. In it's explanation of the cause of inflation, it says,

But what happens if there is an increase in demand for some reason, for example due to a reduction in income tax, or because consumers suddenly feel more optimistic and start spending more money rather than saving? 
Emphasis added. It also has a section on "components of demand":
• Consumers’ expenditure – spending on goods and services by households in the United Kingdom;
• Capital expenditure – investment in buildings and new equipment;
• Expenditure on stocks of goods – spending by firms on increasing their inventories of goods and materials;
• Government expenditure – spending by central and local government on health, education and other public services;
• Expenditure on exports – spending by foreigners on UK goods and services; and
• Expenditure on imports – spending by UK residents on foreign goods and services.
But MV=PY. Instead of looking at the breakdown of demand, what about considering the actual cause of changes? They go on to say,
The ultimate cause of inflation can really be said to be central banks, like the Bank of England. Their behaviour and actions determine whether inflation is allowed to rise or is kept low – in other words, whether they allow prices to rise unchecked by monetary policy, or whether the central bank seeks to influence the amount of money in the economy.
But even here it's implied that the Bank's only culpability with regard to inflation is a failure to perfectly offset external shocks. I just find it frustrating that when the Bank of England are attempting to give examples of increases in demand, they provide vague examples rather than something like the following:
But what happens if there is an increase in demand because of an increase in the money supply
I can't tell if they are implying that changes in monetary aggregates are not a cause of changes to demand, or if they take it as given that the Bank of England isn't a source of demand shocks. It's a shame that part of the Bank's efforts to educate the public is in fact a marketing exercise to absolve them of responsibility for macroeconomic blunders.

First glance at MAex

The recent update to the MA compilation method revealed a sudden reduction in the growth rate. However this was driven by a mysterious "improvements in reporting at one institution", which saw £85bn vanish in January 2014. I made a shadow M' series which added this back in, but that's not ideal.

I've just tried an alternative response, which is to strip MFI deposits from the measure. We can call this MAex, and here's the series from April 1991:

If you want to see a more recent look, here it is from January 2001:

I'm continuing efforts to improve the measure.