This week was the first week we’ve had some hard data on the post-brexit economy and they’ve been jumped on by people who don’t realise that these figures tell us very little of value.
The employment figures mostly refer to the pre-referendum period and are therefore not very interesting. Also, despite headlines saying they showed a reduction in unemployment, they actually showed no statistically significant change (the figures were from a sampling survey).
Nobody expected large numbers of people to immediately lose their jobs as a result of brexit on the morning of 24th June, so saying the negative predictions were wrong because 24-30th showed no increase in unemployment is a little bit daft.
The economist Rudi Dornbusch observed that: In economics, things take longer to happen than you think they will, and then they happen faster than you thought they could. Combine that with the fact that common sense usually wins out. You can see an example of this in the 2007 credit crunch, where people predicted for years it would happen, then it didn’t, then it still didn’t so the naysayers were ignored. Oh and then it very suddenly did, and in retrospect it was obvious and we just ignored it at the time because we were in a bubble and quite enjoyed existing in one. So the question is: is it common sense that brexit will cause huge problems? Well typically your currency doesn’t tank 15% overnight if your outlook is good.
People did, however, expect pretty fast enactment of hiring freezes which if sustained will lead to higher unemployment and lower wage growth over the medium term. This would be bad news combined with a weaker pound because it means lower wages and higher prices.
We know that the number of vacancies advertised in July dropped, and that’s consistent with hiring freezes, but the most recent data point does not make a trend.
As for consumer spending: We know that consumer spending increased in July, but we don’t really know why or if it’s likely to be sustained. There are three very plausible possibilities on the unsustainable side:
1. Much better weather in July after a fairly miserable June encouraged people to go out and spend money
2. The weaker pound encouraged more tourist spending as summer tourists suddenly found they had more money (the great irony of course being that the big leave areas like Sunderland aren’t exactly international tourist hot-spots and won’t see much benefit from this).
3. The weakening pound has encouraged people to make big purchases sooner rather than later because they think prices will rise.
We are going to have to wait until the end of the year before we have a good picture of what’s going on in the short term, and even that really has little value for the long term. The general argument is that brexit will harm economic growth over the medium and long term, and lower economic growth means worse economic conditions for the average person.
It plays effectively into the narrative that leave supporters are not entirely on this planet when they pretend they can refute long term predictions of us leaving the EU with a few weeks of data collected while we are still in the EU.