With the so-called “easy” part of the economic recovery probably coming to an end, the next leg is likely to be slower, particularly if like overseas, the UK suffers a renewed surge in virus cases and more localised lockdowns. While the high frequency indicators may on their own be little use in gauging the precise pace of growth, they will be indispensable in providing an early read on any slowdown ahead.
- With the so-called “easy” part of the economic recovery probably coming to an end, the next leg is likely to be slower, particularly if like overseas, the UK suffers a renewed surge in virus cases and more localised lockdowns. While the high frequency indicators may on their own be little use in gauging the precise pace of growth, they will be indispensable in providing an early read on any slowdown ahead.
- The motivation for using the high frequency data, which are published weekly or even daily, to track the pace of the UK economic recovery in close to real time is clear. After all, given that the monthly GDP figures are only released six weeks after the end of the month, the official data comes with a long delay.
- But there are many shortcomings attached to using them as economic indicators. First, these series are not as comprehensive as the official economic data. The number of OpenTable restaurant bookings, consumer footfall in UK city centres and Google mobility data provide a snapshot of conditions in a narrow subset of sectors. (See here.) They tell us very little about the other expenditure components outside of the consumer sector, such as business investment and net trade, which account for about 37% of GDP.
- Second, the degree to which these indicators relate to economic activity is far from clear. Although the data confirm that people are returning to shops and workplaces, they do not tell us how much people are spending or producing once they get to those places. At least our CE Mobility Tracker (a measure of visits to retail and recreation premises, being in the workplace, driving and public transport usage relative to the start of 2020) appears to have, to some extent, captured the big fall in GDP in March and April and the subsequent rises in May and June. (See Chart 1.) But we do not have a long series of these data with which to test their relationship with official measures of economic activity over time.
- Third, the high frequency data could be exaggerating the recent pace of recovery due to seasonal increases in activity. After all, non-seasonally adjusted retail sales growth is typically 25ppts higher in August than in January. And the series have a short history, so it is difficult to simply adjust the figures ourselves. This all suggests that the high-frequency data should be interpreted with a great deal of caution.
- At the very least, though, these real-time indicators are a helpful addition to the official and survey data. These data may even, in time, allow the Office for National Statistics to improve the timeliness of the official figures. And we can take some reassurance from the fact that our CE Mobility Tracker tallies with the trend in our “Capital Economics BICS indicator”. (See Chart 2.) The data for the latter is gathered using a similar approach to the official GDP figures, so should overcome many of the shortcomings of the Mobility Trackers. (See here.) For what it’s worth, both indicators are consistent with the 7.5% m/m rise in GDP we have pencilled in for July, and suggest that if anything, growth could exceed the 3% m/m rate we have pencilled in for August.
- Meanwhile, even if the high frequency data are not the best predictor of the precise pace of growth, they do give us an early read on the direction of travel. Our view is that after a swift initial rebound, the recovery will start to slow as the labour market weakens. The real time data, which are already starting to show tentative signs of a slowdown in the recovery, will be the first indicators to tell us if we are right.
Chart 1: CE Mobility Trackers & GDP
Chart 2: CE Mobility Tracker & CE BICS Indicator
Sources: Refinitiv, Capital Economics
Sources: Refinitiv, Capital Economics
Ruth Gregory, Senior UK Economist, +44 7747 466 451, email@example.com