The self-proclaimed professor of Aquinomics, Cielito Habito, in his column yesterday sought to foreshadow today’s announcement of second quarter GDP figures for 2011. Unfortunately for him, it turned out to be what kids nowadays like to call an “epic fail”. Here’s why.
Citing elements of his pitik theory, Habito sought to herald the triumph of Aquinomics. Pitik stands for presyo (prices), trabaho (jobs) and kita (income). It also is a Filipino term for flick which is an entirely appropriate way to describe his analysis as I am about to point out below.
At any rate, Habito given the NEDA’s own projections for a 5% growth in Q2 was confident in declaring Aquinomics (the term he coined to describe the Aquino administration’s conduct of austerity measures in government spending by stealth in order to “crowd in” private investments) a success. He writes
On balance, then, we can say it’s so far, so good for ‘Aquinomics’— and that is probably an understatement.
How could he have made this claim without waiting for the official statistics? He justifies this by saying
(E)ven without the official growth figure, one can already make an updated assessment of the state of the economy based on other data that have already been recently reported. Growth in output, after all, is just one yardstick among many. And for many, it is a highly inadequate measure, especially if one is interested in the state of well-being of the people making up the economy.
That may be so, but it is useful to compare quarterly and yearly figures to see how one period stacks up against another and to qualify that around however many limitations one would like to cite about the measurement itself.
Especially in light of today’s report by the NSCB of a weaker than expected 3.4% growth in the second quarter (Sec Gen Virola rightly called it a deceleration), Habito’s exuberance is unmasked. He gave less weight to pronouncements by trade officials signaling a retreat in exports and by extension a slowing of the economy overall as I had noted here last week when I said that the government was “lowering expectations” in anticipation of today’s announcement.
Certainly, Habito’s triumphalism regarding Aquinomics now seems misplaced in light of these figures. How could he have gotten it so wrong? Well, firstly he cites the movement of prices as indicative of a relatively benign environment as far as inflation is concerned. He states
(t)he latest reported annual inflation rate is 4.3 percent, slightly higher than the 3.9 percent last year, but actually slower than in some of our more dynamic neighbors of late. The good news is that food price increases have been slower than overall, suggesting that inflation is not hitting the poor (for whom food is the dominant part of their budget) as hard as the rest.
The first sentence should have set off alarm bells. Inflation rose from last year when the economy was going gangbusters because of election-related spending. Normally an overheating economy nearing the peak of its capacity ought to result in higher inflation. Why would inflation be higher when growth is weaker?
Also, the fact that our more dynamic neighbors have higher inflation is of no consequence given that they presumably are nearing peak capacity in terms of their workforce unlike the Philippines. Lastly, I don’t know why the poor should take comfort in food having slower than overall inflation if the level of inflation overall is higher than last year’s. So not only are they to put up with less growth, they have to deal with higher prices?! The logic just doesn’t add up.
Secondly, Habito cites the jobs figures for April 2011. He presumably took these from the Bureau of Labor and Employment Statistics. He says
The latest official jobs data show that over 1.4 million net new jobs were generated in the year between April 2010 and April 2011, well exceeding the average of one million new workers who join the labor force yearly. As a result, the unemployment rate fell to 7.2 percent from last year’s 8.0 percent, which is a substantial drop. Even better news is that agriculture saw a net gain of 645,000 jobs, indicating improved welfare (and likely reduced poverty) in the rural areas, where the jobs are needed most given our high levels of rural poverty. Services and industry generated 632,000 and 132,000 new jobs respectively, suggesting that improvements have been felt across the board.
Ok, let’s break these figures down. The fact that employment grew by 1.4 million in the year to April compared to 974 thousand overall in the previous year is definitely a positive development. But before we celebrate this as an unqualified success, it might be worth examining where the growth occurred.
The biggest growth of 645,000 net new jobs was in agriculture compared with a decline of 87,000 jobs on average from 2009 to 2010. The growth of 632,000 net new jobs in services in the year ending April 2011 compares unfavorably with an increase of 757,000 in the previous year. The growth of 132,000 net new jobs in industry in the year ending April 2011 compares with an increase of 306,000 in the previous year.
In other words, the growth of jobs in the more productive industry and services sectors declined by 299,000 this year compared to last year. We created fewer new jobs here, but made up for it in agriculture which benefited from favorable weather patterns in the first semester of the year.
All that this means is that structurally, our workforce shifted to the less productive agricultural sector away from areas where wages are better. Now it may be that this was just a correction from previous years when drought occurred, but still it would have been better if the industrial sectors expanded to provide a floor for wages in the agricultural sector.
Thirdly, on the third element of Habito’s ‘Pitik’, kita or incomes, Habito stated
(a)s for the output/income yardstick, we will know the official data tomorrow. But the above jobs data are already suggestive of what to expect. One can be reasonably confident that more jobs are indicative of more production.
Again, another major (dare I say major, major?) boo-boo committed here. Industry actually contracted by 0.6 percent and it accounts for 32% of GDP compared to agriculture which grew by 7.1% but accounts for about 10.5%. This means that their combined growth was only one and a half percent! Luckily, the services sector rose by 5% which is why we ended up with a 3.4% growth figure.
The coup de grace to Habito’s paean to Aquinomics was delivered by the NSCB statement released today which made the following conclusion
(w)ith projected population reaching 95.6 million, per capita GDP grew by 1.5 percent but per capita GNI stood still…
Stated differently, with a population growth rate of 1.9%, our GDP growth of 3.4% translates to a per capita growth of a mere 1.5%. When you factor in compensation and property income from abroad, that per capita growth in income goes down to ZERO! In other words, our economy grew enough to keep Juan de la Cruz none the better from his position last year (with the effects of inflation and population growth factored in).
No wonder our economic managers had all but consigned the first half of the year to the “don’t go there” pile (Habito apparently didn’t get the memo) and switched instead to looking ahead to better prospects in the second half, as I had earlier pointed out.
If one looks at the GDP figures by expenditure, it becomes evident that the capital formation that Habito had celebrated in the first quarter seems to have mellowed down registering a minuscule growth of 0.9 per cent (within the statistical margin of error, meaning it was flat compared to last year).
Government expenditure grew by 4.5% making up for the contraction in the first quarter of this year (where is the argument against “crowding out” now?). Household consumption grew by a healthy 5.4%. Meanwhile, exports declined by 0.3 per cent even as imports grew by 4.1% (that’s a good thing since imports are a precursor to increased production activity in the next quarter, given that our export production is import-dependent, and the reason why trade officials seemed optimistic about the second half).
So, whither Aquinomics? I think, perhaps…back to the drawing board, or as Habito suggests, just give it the flick!
Some related articles:
- Back to the Future with Aquinomics 101
- The Surplus Fetish
- Lies, Damned Lies and Statistics: Or why De Quiros is a bit of a crank