The uk productivity dilemma april

Chart of the Day

Man in Van solves UK Productivity puzzle …April 2015

The Saturday Economist - Special Report

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Chart of the Day

Data Source : Office for National Statistics : Labour Productivity, Q4 2014 Release Date April 2015

The Saturday EconomistUnderstanding the UK Productivity Dilemma - April 2015

This week - we were on BBC Breakfast to explain the UK productivity dilemma. Here’s a copy of the research for the show ..

April 13th 2015


Productivity Index

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1960 1970 1980 1990 2000 2010The Saturday Economist Understanding The UK Productivity Dilemma April 2015 Data 1960Q1 - 2014Q4

Trend Rate 2.24 OLS 1960Q2 - 2007Q3

“Productivity growth has failed to increase - despite the recovery …

Data Source : Office for National Statistics : Labour Productivity, Q4 2014 Release Date April 2015

Productivity has failed to increase despite the recovery . Leading to fears the potential rate of growth will be impaired in future years …



Productivity Rate of Growth %

0.00

0.75

1.50

2.25

3.00

1960s 1970s 1980s 1990s 2000s 2010s

0.7

1.2

2.02.0

2.5

2.9

“But has been falling since the 1960s …

The Saturday Economist Understanding The UK Productivity Dilemma April 2015 Data 1960Q1 - 2014Q4 Data Source : Office for National Statistics : Labour Productivity, Q4 2014 Release Date April 2015

Productivity Rate of Growth

In fact, it’s been falling for the last fifty years …

So no need to panic just yet



Productivity Rate of Growth - Quarterly Year on Year

-5.0-4.0-3.0-2.0-1.00.01.02.03.04.05.06.07.08.09.0

10.0

1960

Average 2.001960Q2 - 2014Q4


“The Productivity of Growth is very volatile …

Productivity growth is very volatile …



Productivity & GDP - Rate of GrowthCorrelation 0.731OLS 1960Q1 - 2014Q4

-8

-6

-4

-2

0

2

4

6

8

10

12

-6.8 -4.5 -2.3 0.0 2.3 4.5 6.8 9.0The Saturday Economist Understanding The UK Productivity Dilemma April 2015 Data 1960Q1 - 2014Q4 Data Source : Office for National Statistics : Labour Productivity, Q4 2014 Release Date April 2015

“and is highly correlated with the rate of Growth of GDP …

Productivity

GDP

And is highly correlated with the rate of growth in GDP …

The current “anomalies” are well within the bounds of historical distribution.



Productivity Rate of Growth %

0.00

0.75

1.50

2.25

3.00

1960s 1970s 1980s 1990s 2000s 2010s

0.7

1.2

2.02.0

2.5

2.9

“Part of the reason for declining productivity over the years…


Productivity Rate of Growth

The fall in productivity over the years … can be explained (in part) by the relative rates of productivity in the sub sectors of the economy … (next slide)


All*Transport EquipmentChemicals & Pharma Computer & Electrical

Information and CommsManufacturing

ProductionFinance and Insurance Services

Textiles and Clothing Professional Services

Metal & Metal Products Rubber & Plastics

Food Drink TobaccoMachinery & Equipment

Coke and PetroleumPrivate Sector Services

Transport & StorageWholesale and Retail

Service SectorServices Other

Wood Paper PrintAdmin and Support

Forestry FishingArts Entertainment & Recreation

Government ServicesAccommodation and Food

Construction Real Estate Activities

-1.0 0.0 1.0 2.0 3.0 4.0 5.0-0.1

00.3

0.40.9

1.21.31.3

1.51.61.6

1.82.12.1

2.32.3

2.42.42.4

2.82.9

33.1

3.84.3

4.44.8

2.3


Productivity by Sector


“is the relative rate of growth of sectors within the economy…

Manufacturing has much higher productivity than services …

Especially if we compare transport, (wheels and wings) to leisure, accommodation and food …



The Saturday Economist Understanding The UK Productivity Dilemma April 2015 Data 1960Q1 - 2014Q4

Productivity Jobs Growth Dec-12 Dec-14

All 1,753 31,768 33,521

Service Sector 1.6 1,528 26,431 27,959

Professional Services 2.4 335 2,545 2,880

Accommodation and Food 0.3 261 1,960 2,221

Admin and Support 1.3 240 2,546 2,786

Information and Comms 3.8 92 1,250 1,342

Wholesale and Retail 1.6 87 4,809 4,896

Transport & Storage 1.8 86 1,506 1,592

Construction 0.0 86 2,035 2,121

Manufacturing 3.1 76 2,539 2,615

Real Estate Activities -0.1 71 499 570

Arts Entertainment & Recreation 0.9 68 894 962

Forestry Fishing 1.2 63 375 438

Finance and Insurance Services 2.9 -24 1,144 1,120

Private Sector Services 2.1 -44 1,569 1,525

Government Services 0.4 -44 1,569 1,525

“Much of the job growth is in sectors with lower productivity…

Data Source : Office for National Statistics : UK Labour Market Data 000, March 2015 Release Date March 2015


The figures speak for themselves …



the faster rate of growth in output and jobs in service with lower productivity … explains in part the slowing rate of productivity over the last fifty years …

We estimate the trend rate of productivity growth is now just 1.6% …


“the faster rate of growth of leisure … with even lower productivity explains the continuing slow down in productivity rate of growth…

“



“So what of productivity since the recovery ?

“The UK is still almost 10% below the trend rate growth of output …


As we demonstrate in the next slide

QTR 4 Latest Data

GDP Trend Rate2.7%

Trend Rate


Latest

3.0%

GDP and the Trend Rate of Growth

Our long term trend rate of growth 1955Q1 : 2014Q2 is 2.7% identified from trend rate analysis using OLS simple regression. The intercept at 1995Q1 is coincidental.

The average rate of growth 1995Q1 : 2008Q1 is 3.3% using similar methodology.

The output gap 2014Q3 compared to long term trend is 9.4%

The Output Gap and Trend Rate 60.0

70.0

80.0

90.0

100.0

110.0

120.0

130.0

1995 1998 2001 2004 2007 2010 2013

9.4%

3.3%

2.7%

Growth Rate Q4 - 2.7% Trend rate - 2.7% Output Gap - 9.4%

Data : ONS Gross domestic product index: CVM: Seasonally adjustedYBEZ seasonal_adjustment SA base_period 2010 priceCONS index_period 2010

“The UK is still almost 10% below the trend rate growth of output …


So what impact does this have on productivity… ?



“We consider productivity is a derivation of output / labour … rather than the driver of growth … ?

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1995 1998 2001 2004 2007 2010 2013

O — L

GDP Index

Productivity Index P (f)

1995Q1 = 100


We think of productivity as a derivation of output over labour … A simple arithmetic …

Productivity is .. Not a driver of output and growth .


The Saturday Economist Understanding The UK Productivity Dilemma April 2015 Data 1960Q1 - 2014Q4 Data Source : Office for National Statistics : DYDC : UK Labour Market Data 000, March 2015 Release Date March 2015

20,000

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1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014

Workforce Jobs …


Jobs are increasing …


The Saturday Economist Understanding The UK Productivity Dilemma April 2015 Data 1960Q1 - 2014Q4 Data Source : Office for National Statistics : Business Investment [NPEL] £000, March 2015

30,000

32,000

34,000

36,000

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40,000

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44,000

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48,000

50,000

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60,000

2000 Q1 2001 Q2 2002 Q3 2003 Q4 2005 Q1 2006 Q2 2007 Q3 2008 Q4 2010 Q1 2011 Q2 2012 Q3 2013 Q4 2015 Q1 2016 Q2

Business Investment


Business investment is increasing …

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Manufacturing Services


The Saturday Economist Understanding The UK Productivity Dilemma April 2015 Data 1960Q1 - 2014Q4 Data Source : Office for National Statistics : Profitability of UK Companies … 9th April 2015

Business Profitability …


And so too is business profitability …

especially in the service sector …



“So what of the man in the van …


The vans keep rolling …No matter how big the loadin the back!

Remember …We think of productivity, not as a driver of growth but as a simple output of growth. A simple calculation. A function of output divided by labour which renders the productivity calculation. As output increases productivity improves. As output falls, productivity falls.

The man in the van explains all. Our man in the van, is part of a national delivery fleet. The next day delivery promise, demands a national fleet with a national team of drivers to keep the vehicles on the road. At the beginning of 2008, order books and the vans were full. Productivity was high …

In 2008, the orders fell as did the loads in the back of the van. The productivity of our man in the van fell and has not made a full recovery since. His productivity is improving but is not yet back to pre recession levels.

Productivity is important as a Key Performance Indicator (KPI) in the manufacturing sector with a exposure to international markets. But is it so important in the service sector, where service is the KPI. Can waiters serve more tables? Housekeepers clean more rooms? Retailers cut staff without increasing queues at check out!

In the manufacturing sector with a exposure to international markets, Productivity is important as a Key Performance Indicator (KPI). But is it so important in the service sector, where service is the KPI. Can waiters serve more tables? Housekeepers clean more rooms? Retailers cut staff without increasing queues at check out!




The vans keep rolling …No matter how big the loadin the back!



“Sooner or later, something will turn up …

… it will be UK productivity”


Thanks to the man in the van … Sooner or later … Something will turn up …

It will be UK productivity!

“In a service sector economy, it is important to understand .. The concept of a ‘cyclically and sectoral adjusted productivity’ trend rate of growthand productivity as an output of growth … not a driver of growth!

Chart of the Day

Man in Van solves UK Productivity puzzle …April 2015

The Saturday Economist - Special Report

Thanks to the man in the van … Sooner or later … Something will turn up …

It will be UK productivity!

The uk productivity dilemma april

Economy & Finance

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