Blessings in the details
It seems that I spoke too soon last week as I ended my article with the anticipation that the GDP news to be announced the next day was likely to “be upbeat, and certainly will not disappoint.” I argued that the latest jobs data suggested so, with 1.4 million new jobs created in the past year, pushing down unemployment from 8.0 to 7.2 percent. To me, that was evidence that the economy was growing the way it should—that is, generating much new employment, hence probably pulling more families out of poverty.
Well, I was wrong. When the news came a day later, the numbers did in fact disappoint most who heard the news: the economy had unexpectedly slowed down to a 3.4 percent annual growth rate. But not one to give up quickly, I examined the details of the economic growth data more closely. For this, I must thank the National Statistical Coordination Board, which continues to make sure I receive the detailed tables promptly after it makes the report public. I found that rather than the proverbial devil, there are actually blessings in the details. Thus, like my esteemed fellow columnist Mahar Mangahas, and unlike my equally esteemed fellow columnist Winnie Monsod, I am not too disappointed. Let me explain.
At least four points provide the silver lining in the otherwise unwelcome news. First, the economic sectors that matter most, and many key industries, actually grew faster instead of slowing down. Second, consumer demand actually speeded up relative to both the previous quarter and last year, indicating improved purchasing power for the people. Third, private construction continued its brisk growth, helping dampen the steep fall in government construction, and suggesting continued investor confidence in the face of external difficulties. And fourth, much of the reported slowdown may actually be illusory, due to the flawed (albeit inevitable) manner by which a crucial item in the production statistics is measured.
On the first, it is noteworthy that the sectors with the bulk of jobs in the economy, namely agriculture and services, actually grew faster than in the first quarter, and in the case of agriculture, it vastly improved over last year. This fits squarely with the jobs data I cited last week, with agriculture and services each creating well over 600,000 new jobs. The industry sector saw output fall slightly (-0.6 percent) primarily because public construction, as measured, had shrunk to less than half of last year’s level (more on this below). But in spite of its contraction, the sector actually produced 180,000 new jobs over the past year as well, suggesting that the contraction was not all that bad for common workers. At the industry level, those that actually performed better include sugarcane (504.3 percent), corn (71.5 percent), rice (13.2 percent), copper and other metallic mining (16.9 and 71.9 percent), food and beverages (14.2 percent), furniture and fixtures (45 percent), paper products (13.1 percent), transport and storage (8.3 percent), finance (9.9 percent), real estate (11.8 percent), education (7.2 percent), hotels and restaurants (8.1 percent), and many others. What we are seeing, then, is not a general slowdown; there’s actually much good news within the seemingly discouraging overall numbers.
The second key point is that consumer spending actually accelerated (5.4 percent) over the previous quarter (5.3 percent) and past year (1.9 percent), implying that consumers had even more money in their pockets to spend. Furthermore, the increased spending appears broad-based, and not just coming from high-end consumers. Evidence: significant contractions in the motor vehicle and appliance industries, but brisk growth in food industries. This is again consistent with the good news on jobs. Meanwhile, the continuing double-digit growth in private construction (19 percent) is reassuring news, as it suggests that private investor confidence continues to run high. The primary culprit that slowed down overall investment, and with it overall output, was the 51.2 percent fall in government construction.
This matter deserves elaboration, and is my fourth point. One of the weakest elements in the national income accounts is actually this item “public construction,” which is captured in the statistics from government budget releases for infrastructure projects. Nobel Laureate economist Joseph Stiglitz, among other experts, points out the inherent problem with measuring this component of the economy’s output by actually measuring input (i.e., the money disbursed), which, unfortunately, is the only practical way to do it anywhere. But in a country where the amount of budget released and the amount that actually goes to the intended purpose can have such wide discrepancy (I need not explain to the seasoned reader why), budget releases will be far from a reliable measure of real public investment. So we are told that budget releases for infrastructure dropped to half their level last year. But given the way the President’s men are earnestly (perhaps too earnestly?) trying to eliminate the traditional discrepancy I allude to, can we then say that we managed to build only half the amount of infrastructure built last year? Probably not.
Citing the significant drop in hunger and self-rated poverty polled by the Social Weather Stations over the last two quarters, Mahar Mangahas observed in his Saturday column that last quarter’s reduced economic growth came with reduced economic deprivation, i.e., improved well-being. In the end, it is not just quantity, but also quality of our growth that counts, and it appears that we did better on the latter this time.
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