When Philip Green, retail magnate, not to mention richest English national, says conditions on the High Street are the toughest he has ever known, and yet the Office for National Statistics says retail spending grew by 2.6 per cent in the first quarter of this year, who do you believe?
When the Halifax and Nationwide talk about strong economic fundamentals propping up house prices, are you convinced?
When the Treasury, with access to oodles of data, projects a mild slowdown in economic growth this year and next, do you sigh with relief and say, “So that’s all right then”?
For that matter, when Nigel Lawson once claimed that rising interest rates would not lead to a recession, did you think, “Thank you for that Nigel, I was getting worried then, but you put my mind at rest”?
Alternatively, maybe you are a tad more cynical. Or maybe you buy into the doom and gloom in the media. But who is right? Many say the media are talking us into trouble – that actually things are not so bad. Look at the official data, they say. But are they right?
In a recent interview on Radio 4, Martin Weale, Director at the National Institute of Economic and Social Research (NIESR) was, how can we put it, disparaging about consumer confidence indices. He suggested these were virtually meaningless scores.
Talking of NIESR, it recently forecast growth to slow from 3 per cent in 2007 to 1.8 per cent in 2008 and 2009. Now actually, if that forecast is proven right, it will be an impressive performance for the UK. We are already enjoying our longest ever run of economic growth – by a long way, actually – and so if, during the midst of the worst financial crisis since the 1930s, the economy merely slows down a bit, we should be delighted.
And if that does indeed prove to be the case, then maybe we should all apologise to Gordon Brown, and beg his forgiveness for all those nasty things we have been saying.
Yet, despite all those reasons to be cheerful, the media still fill us with talk of doom.
The last few hours have seen two reports hit the media trail. The Nationwide has recorded a big fall in consumer confidence, with its index dropping from 77 in March to 70. To put that in perspective, the index stood at the heady heights of around 110, 40 months ago, but even as recently as last Autumn was only just below 100. The April score was the lowest yet recorded by the Nationwide, but then, since it has only been capturing the data for four years, maybe we can not read too much into that.
More to the point, last week the consumer confidence index from GfK NOP fell to its lowest level since the early 1990s.
But then again, so what? What is consumer confidence, exactly? This is clearly an index that uses no hard data – it is based on opinion – opinion that may be moulded by the press. So if the press say things are bad, consumer confidence then falls, and the press have even more reason to say things are bad.
But then again, frankly, official data has been lousy at predicting economic downturns. Nigel Lawson totally failed to foresee the strength of the consumer boom in the late 1980s, and then, when it was too late, slammed on the brakes, denying a recession would result right up to the moment that recession bit harder than a Pit Bull on its dinner.
Maybe the problem then was the official data – it did not take sufficient account of what people were thinking. Maybe a consumer confidence index would have told Mr Lawson the information he would have required to even-out the cycle.
And that brings us to the other piece of data to hit the media track this morning.
Yesterday, Capital Economics published a report on discretionary income, that is income after spending on items we have little control of in the short-term – mortgage payments/rent, utility bills, cost of travel to work, council tax and food. Its finding: “The share of household income eaten up by unavoidable or fixed outgoings has risen from 25 per cent to 31 percent over the past 6 years. And there is little hope of this share falling back in the foreseeable future.”
Here is the good news, as rates fall, and banks reluctantly cut rates down the line, Capital Economics says, “We think that mortgage payments as a share of household income will fall from 10.7 per cent to around 10 per cent by the end of 2009. But, this is likely to be fully offset by further rises in the costs of all other unavoidable outgoings.”
With oil, food, water and gas all rising fast, it says, “The share of household income left over for discretionary spending looks likely to remain at its lowest level since 1991.”
The Daily Mail, never slow to find a reason to criticize this government, splashed news of the Capital Economics report all over its front page – this will of course help deflate the consumer confidence index by even more.
This is the fourth report we have recorded that has published data of this type over the last year. But, before you decide there is no hope, bear this in mind.
These non-discretionary items are precisely the types of products that have been rising in price. Other items, such as clothing, furniture and CDs have been falling in price. So we may have less money to spend on non-discretionary items, but many of the discretionary items have been falling in price – so the money left over may, theoretically, go further.
So it comes back to statistics. Do you believe the retail price index, which supposedly tells the full story, or do you conclude that this index puts insufficient weight on items such as petrol, food and council tax?
And now it is over to you.
There is no shortage of statistics, but is it the official or the anecdotal data that tells the lie?
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