Most parents will be familiar with the anguished cry of “it wasn’t my fault”. And if they could speak, both the US and UK economies would probably be making it. Both had a lacklustre Q1, the US especially. And in both it was caused in large part by a worsening balance of trade. For the US, a poor economic performance reflects soggy global demand more than it does domestic factors.
One bill to rule them all
A 'one nation' Queen's Speech contained an ambitious 25 bills. The ambitions lie not with their quantity but with their goals. One bill aims to lower the benefits cap, another to raise the income tax threshold. There are bills to extend free child care and the Right to Buy. And then there’s constitutional reform involving further devolution.
Overshadowing them all is the referendum on Britain's EU membership. It’s often a long, sometimes tortuous, and not always successful journey for a bill to become law. Yet as many of these proposals were in the manifesto, it reduces the risk that the Lords, where the Government does not have a majority, will block a bill’s progress to the statute book.
As you were
Q1 GDP growth was still estimated at 0.3% in the ONS’s second release and therefore remains disappointing. But the detail shed some light on why hopes were higher and the economy looks stronger on lots of other measures. Households continued to spend, with consumption rising 0.5% on the quarter, businesses were investing too, but the spoiler was international trade.
A surge in imports knocked 0.8% off the Q1 growth figure. A dismal performance yes, but one that largely reverses a strong contribution from trade in Q4 2014. Over the past year domestic demand has risen by an average of 0.7% a quarter, that’s probably closer to the sort of growth most UK businesses are experiencing.
Back into the groove?
Business investment turned in a good performance in Q1, growing by 1.7% from Q4. Hopefully this signals a return to healthier levels of growth after the renaissance in business investment fizzled out in the second half of 2014. Investment in new vehicles, buildings, ICT equipment and machinery and intellectual property is growing but at a slower pace.
Confidence in the sustainability of the UK's recovery could be cemented if growth in these areas can move up through the gears.
Election, what election?
The election came and the election went. At least, that was the message from the latest retail survey by the Confederation of British Industry. Not only was reported sales growth the second strongest reported since 2010, expectations of sales growth in the coming month hit a 27-year high.
The ONS reported that retail sales (excluding fuel) grew by a solid 2.8%y/y in April. It looks like the numbers for this month and next will be even better. Since 1959, UK consumer spending has risen around the time of all but one election.
Where the money is
Across all the 173 UK mini-regions, average household disposable incomes were higher in 2013 than 2008. Yet only one in five of these regions saw income growth keep pace with the cost of living. Orkney came out in first place, with average incomes up 27%, while the good burghers of the otherwise prosperous London borough of Wandsworth managed just 2.3%.
The differences between regional incomes have remained largely unchanged since 1997, with one important exception. The top two regions (both in London) saw their average disposable income pull further away from the average.
More puzzling still
US GDP fell at an annualised rate of 0.7% in Q1. The main culprit was a sharp fall in exports, down 7.6%. That might reflect the temporary effects of problems at ports but it could also be a result of weakening Asian growth. While spending by Americans rose by 1.1%, it was slower than in Q1.
So, both overseas and domestic demand disappointed. Yet the US is adding more than 200,000 jobs per month. Reconciling these figures is a challenge. They also give the Fed no cause to consider raising rates soon.
Cooling and heating
US house prices increased by 4.1%y/y in March, according to Case Shiller. A year ago inflation was more than 10% but the decline from there has been the gentlest of glides. Slower economic growth should mean further falls from here. But demand growth remains strong.
Pending home sales, a forward-looking indicator, were up 3.6%m/m in April and 14.0%y/y. Applications for mortgages to buy a house were also up 14%y/y.
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