Economy resistant to prevailing gloom

ANALYSIS:THE FIRST economic indicators for November became available last week. Tax returns were up in the month of the dead. Surveys of company executives on the level of activity in their businesses showed growth. Consumer confidence rose by a smidgen. And joblessness fell.

Taken together, these indicators pointed to an economy on the rise in November. Given so much bad news and uncertainty over the course of that month, this is not far short of a miracle.

This week, only two new November indicators were released – new car registrations and inflation. The former corroborated last week’s near-miracle results. The number of new cars registered in November was more than double the same month in 2009. This was further evidence that consumers did not take fright in response to the shock of the unfolding bailout saga and deepening worries about the banks.

Thursday’s inflation figures for November, which showed a small month-on-month fall in prices, potentially contradict that interpretation – one reason prices fall is because demand weakens.

That said, it would be wrong to make too much of the inflation figure, both because many factors influence the price level and because the decline was so small.

The next big number to watch comes out next Thursday. The most wide-ranging indicator of the state of the economy – gross domestic production (GDP) and its variant, gross national product (GNP) – will be released.

Although these numbers will cover the third quarter of the year, and will therefore already be quite dated, they will give the best indication yet as to whether the economy might have turned that elusive corner.

A further contraction in GDP/GNP would not only add to the general gloom, it would make meeting the terms of the EU-IMF bailout even more difficult. That, in turn, would increase the chance of even more cut-and-tax flagellation over the next year.

If next Thursday’s figures could be grim, yesterday’s industrial production figures for October were mixed. The headline rate fell month on month. This was accounted for mostly by a slump in pharmaceutical production – Ireland’s biggest manufacturing industry by far and the main driver of the very strong growth in overall output during 2010.

The positive from yesterday’s numbers was that the “traditional” manufacturing sector expanded its production in October, continuing its slow recovery from the nadir reached late last year. This offers some hope that manufacturers may start hiring more people than they are firing. This phenomenon of jobless growth in industry has been subject to much comment. It is illustrated in the chart.

By taking the relevant data series and rebasing to the same starting point – the beginning of 2008 – one can see how they have evolved relative to each other over the three years to the third quarter of 2011.

It is clear from the chart that the total number of jobs in manufacturing tracks output levels in the traditional sector – mostly small, homegrown operations – much more closely than the modern one.

It also shows that the very strong growth in the modern sector’s output has not led to net job creation. That may be changing. The seasonally unadjusted numbers working in manufacturing rose in the third quarter, the first time that happened in the past three years.