The hidden 2011-2 “investment” boom?
To keep my comment section happy, here is some “productivity scepticism”. I like this theory from Paul Donovan of UBS discussed in a Guardian article, here quoting Donovan:
“In 2000, 32% of UK businesses were employers. By 2014, 24% of UK businesses were employers. This raises the obvious question of what on Earth 76% of UK businesses were doing if they were not employing anyone – and the answer of course is that they were single person businesses where the owner was the sole person ‘on payroll’.
This matters for capital spending, because people setting up as self-employed – for example, as a consultant – may well make little or no upfront investment in kit. Says Donovan:
“If you are a self-employed consultant, you probably already have a laptop, have a car, have an office at home. As the boundaries between home and work blur, we are making better use of the capital we have got.”
“What this means is that investors looking for a “capex recovery” may be missing the point. The secret capex story may be that businesses make better use of non-business assets, and that part of the capex cycle … masquerades under a ‘retail sales’ pseudonym.”
One of the puzzling parts of the UK productivity puzzle is the divergence of employment and output during late 2011 through 2012, when output barely grew and employment soared. If output and employment are both growing we can use the “low-skilled labour supply shock plus composition effect” theory to explain slow average productivity growth, but that doesn’t work well for this period.
We can (partially) resolve this problem by revising up 2011-2 real GDP, and Donovan’s theory could help here. 2011-2 saw a self-employment boom; if capital investment by the self-employed shows up only as consumption, or not at all, then measured GDP was too low. The recovery in household consumption of durable goods has been much stronger than total consumption, up 19% from 2008 Q1 to 2014 Q1 versus 2% for the latter. One of the upcoming ONS methodology changes is to remove a £500 lower bound on what counts as capital spending in the business investment survey, perhaps this will help.
File under “grasping at straws” if you prefer. There are good reasons to be sceptical there is any significant bias in measuring GDP, and other survey indicators (PMIs etc) suggest the 2011-2 quasi-depression was roughly that. Stories about the unemployed being pushed into “false” self-employment could make us doubt the jobs data instead, though again it would be surprising if that was sufficient to explain such a large shift in the labour market surveys.