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The Economic Situation: Chapter I. The Home Economy

Published online by Cambridge University Press:  26 March 2020

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Extract

At the end of the first quarter of this year, after six months of rapid expansion, the economy entered a quieter phase. The quarter-to-quarter growth in output, which in the previous six months had averaged over 5 per cent at annual rates, probably fell back in the second quarter of this year to well under half that figure.

Type
Research Article
Information
National Institute Economic Review , Volume 45 , August 1968 , pp. 4 - 14
Copyright
Copyright © 1968 National Institute of Economic and Social Research

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References

note (1) page 4 The quarter-to-quarter movement in gross domestic product over the period differs, as usual, according to the measure (expenditure, output or income) used. In National Institute Economic Review No. 44, May 1968, page 4, and page 7, table 2, footnote (a), we suggested that because of the difficulties of adjusting for the effects of devaluation and the dock strikes on the estimates of exports, stockbuilding and stock appreciation, the output measure was probably the most reliable of the three. In computing the ‘compromise’ version of gross domestic product (an average of the three measures), we therefore then made some additional adjust ments to the official estimates of the expenditure and income measures. We have now dropped these (table 1), following the subsequent revision of official figures.

note (2) page 4 National Institute Economic Review No. 44, May 1968, pages 4-16.

note (1) page 5 The year on year forecasts give a better picture of invest ment growth than the ‘terminal’ (last quarter/last quarter) rates, at least for 1969. The 1968/9 terminal rate is distorted by an (inevitably rather arbitrary) allowance which has been made for the effect of the withdrawal at the end of this year of the special bonus on investment grants, which will encourage the bringing forward of some projects from next year into 1968.

note (1) page 6 Imports of military aircraft are excluded from these calculations. The underlying rise is principally related to the increase in total final sales and of stockbuilding (see I. G. Black, J. E. Kidgell and G. F. Ray, ‘Forecasting Imports : a re-examination’ in the National Institute Economic Review No. 42, November 1967). In the present case the con tribution from an advance of total final sales in 1969 is expected to be small (growth in this item is put only at a little over 1 1/2 per cent), but the effect of increasing stockbuilding is rather greater.

note (2) page 6 National Institute Economic Review No. 42, November 1967, pages 4-7, and table 1.

note (3) page 6 The main changes since the original estimate had been to assume rather lower elasticities, a smaller eventual price rise and a longer lag in the pattern of response. See National Institute Economic Review No. 43, February 1968, page 11, and No. 44, May 1968, page 6.

note (4) page 6 National Institute Economic Review No. 44, May 1968, page 6.

note (5) page 6 A plausible explanation is that the travel allowance has restricted winter holidays more heavily than summer holidays, and the seasonal adjustments do not allow for it.

note (1) page 8 This reflects the adjustments made to the estimated devaluation response, which are discussed with reference to the growth of imports of goods and services between 1968 and 1969 on page 6 above. The adjustments also involve raising the forecast level for the second half of 1968. The revised view of the response to devaluation in the forecast period mainly affects the estimates of visible imports. These would tend to be raised in any case, given forecasts for the combined volume of visible and invisible imports, because of the down wards revisions applied in the light of recent experience to the forecasts of invisible imports.

note (2) page 8 The forecast for employment is shown in table 3.

note (1) page 10 See the National Institute Economic Reviews No. 42, November 1967, page 13; No. 43, February 1968, pages 5-7; No. 44, May 1968, page 9, footnote (1).

note (2) page 10 Other observers have sought an explanation of the recent behaviour of unemployment in faulty seasonal adjustment of the unemployment series, and in very long lags between output and employment. Our own preference is for the explanation suggested, according to which the apparently ‘seasonally perverse’ movement of unemployment—down in the fourth quarter of 1967 and the first quarter of 1968, and up again in the second quarter—can, because of a very short, almost negligible, lag in adjustment be explained quite simply by reference to the movement of output in those quarters relative to that of productive potential.

note (1) page 11 See chart 2. The suggested range of figures is based on extrapolating the trend of travel debits shown in the chart since 1955 or in the last three years before the imposition of the present restrictions in 1966 (the latter yielding the higher figure), and assuming a 25 per cent offset to account for the import content of overseas travel expenditure diverted to domestic travel or other objectives.

note (2) page 11 The question raised is rather whether the controls on capital export could not be extended to cover private portfolio investment in the Sterling Area. The attitude of the countries affected would be crucial here, as consequential action on their part to diversify their reserves could negate any benefits that might otherwise accrue.

note (1) page 14 National Board for Prices and Incomes, Report No. 70, ‘The Standing Reference on the Pay of the Armed Forces, First Report, Cmnd 3651, May 1968.