The Economic Situation: Chapter I. the Home Economy

In previous Reviews, we had suggested that the economy would be likely to encounter a phase of particularly sluggish growth in demand and output. The performance since the beginning of this year suggests that this view, so far from being too pessimistic, was actually an overstatement of the prospect for expansion. The national accounts figures for the first quarter, just published, indicate a drop in activity between the fourth quarter of last year and the first of this : but while all three measures of gross domestic product (income, output, and expenditure) agree in this movement, as they do also in showing a fairly sharp rise in the fourth quarter of 1969, it seems probable that they are giving an exaggerated picture of the movement of the economy in these two quarters. This is particularly true of the expenditure measure, which incorporates big changes in stockbuilding between the two quarters. These are probably associated with timing discrepancies in the recording of other elements of expenditure. But even assuming that this is so (which would imply that the first quarter fall indicated by the unadjusted ‘compromise’ figure of GDP in table 1 is overstated), the evidence of the industrial production index gives no reason for thinking that the subsequent recovery of GDP likely to be recorded for the second quarter will be very much more than a ‘statistical’ one, correcting for the previous aberration. The average value of the industrial production index for April and May was rather below that of the first quarter and although some recovery can be expected for June (especially as the May figure was affected by strikes), the underlying trend of the economy during the first six months of the year must appear, at best, to have been no more than slightly upward. The steep rise in unemployment recorded in June—following six months of little change—is consistent with a lagged response to this trend in output.