Commentary: Caveats to the good news

For the first time since the recession began in the summer of 1990, the non-oil economy has expanded. But before anyone rushes to declare the recession over, there is a long list of caveats. First, the rise of 0.1 per cent in the second quarter is prone to revision. On past performance, there is a one-in-four chance that the revised figures, published in September, will show anything from a fall of 0.2 per cent to a rise of 0.4 per cent.

The second caveat is that the pattern of growth is almost as important as the overall estimate, especially when growth is so weak. Import growth outpaced export growth in the second quarter, so that the overall impact of trade was depressive. Retail sales volume rose by 0.3 per cent in the second quarter, which is taken by some as an encouraging pointer for consumers' spending.

But the retail sales figures have tended to be more buoyant than overall consumers' spending. They account for only about 40 per cent of consumption, which adds spending on cars and services like haircuts or restaurant meals. For example, retail sales volume fell by 1.2 per cent from the quarterly peak in 1990 to the first quarter of this year, whereas the decline in consumers' spending was 3.4 per cent. Consumers' spending may have been fairly flat in the second quarter.

That means that much of the very modest non-oil growth in the second quarter may have been caused by companies deciding to meet more of the demand for their products from the factory floor and less from the storeroom shelf. But any continued slowdown in destocking depends on business confidence and reasonable sales. The recent CBI survey showed sagging confidence, and yesterday's figures for retail sales volume in July - the first month of the third quarter - were the lowest since March. We are not out of the woods yet.