Time to go shopping again?
- 16 September 2013
- From the section Business
A surefire way to sound pompous and ridiculous is to refer to oneself in the third person.
So it is with some trepidation that I mention that tonight you can watch the final episode of Robert Peston Goes Shopping (BBC Two, 21:00 BST), the series wot I made on the history and future of retailing.
As you would expect, much of this evening's film is about the prospects for shops (and all consumer-facing businesses) faced with perhaps the biggest challenges of the series' 60-year purview: The excessive debts accumulated by households in the boom years plus the rapid migration of sales to the internet and of marketing to social media.
What became very striking in the final weeks of filming was that, after stagnating for most of the years since the 2008 crash, consumer spending has begun to surge again in recent months. It has been the motor of revival in the UK's economy.
Thus output of the "distribution, hotels and restaurants industries" rose 1.2% in the second quarter of 2013 and 1.2% in the first three months of the year, when economic output or GDP as a whole increased 0.7% and 0.3%.
Many people would presumably say "any economic recovery will do", given the long years of stagnation since the banking crisis.
But this has not yet been the kind of renaissance, based on business investment and exports - a so-called "rebalanced" economy emerging from the ashes of a UK too dependent for decades on debt-fuelled consumer spending and the financial services - which the government said it wanted to engineer.
Our economy still feels a bit same-old, same-old - with economic momentum seemingly as dependent as it ever was on us shopping till we drop.
I was therefore intrigued in August when the new governor of the Bank of England, Mark Carney, appeared on the Today programme and said that he thought the resurgence in consumer spending was broadly sustainable, that shoppers were now spending within their means, not increasing their debts in the kind of reckless way that characterised the unprecedented boom from 1992 to 2008.
His remarks were perhaps surprising since the latest figures for the savings ratio - or how much we save as share of income - showed a very sharp fall in the first three months of the year: the savings ratio dropped to 4.3%, the lowest rate of saving for four years, significantly below the average of about 7% since 2009.
And that was before retail spending really took off.
What Mr Carney cited was a fall of about 20% in the indebtedness of households since the crash.
Again this surprised me, since in absolute terms the indebtedness of households has actually risen over the past five years - to a fraction over £1.5 trillion (from a smaller fraction over £1.5tn in 2008).
So I rang the Bank of England to ask what he meant.
Well, the governor is of course comparing debts to our income. More precisely, he is comparing debts with the available total resources of households. And these have risen perhaps a bit more than you might have expected, presumably thanks to the compounding effects of even modest wage inflation and higher inflation in benefit payments.
The available resources for all of us - the Bank of England's preferred proxy for how much we have available to spend - rose 16% between 2008 and 2012 to £1.1tn.
Weight of debt
What this means is that the ratio of households' financial liabilities to their total resources (broadly equivalent to the ratio of our debts to our incomes) has fallen from 162% in 2008 to 140% last year (for what it is worth, the ratio was even higher, 163%, in 2007).
So on that measure, the burden of our debts has fallen significantly.
But are our personal balance sheets sufficiently mended such that it is prudent and sensible for us to start buying again all that lovely stuff we've just got to have?
Here is the thing. A debt-to-income ratio of 140% is still very high by historical standards. So, for example, in 1992, at the start of the long boom, we had borrowed 105% of our incomes or resources.
And household debts in the UK remain high by historical standards. Higher than in the shopping-mad US by about a fifth and higher than in Germany by two-fifths (when measured as a share of GDP).
There is an argument that a UK that had learned the lessons of the recent boom-to-bust would wish its household debts to be on a declining trajectory for some years yet.
Which of course brings us to the resonant debate of the moment - whether the Treasury and Bank of England have been encouraging a dangerous housing market boom, with the Bank of England's cheap loans to banks (the Funding-for-Lending scheme) and the Treasury's de facto provision of deposits for house purchases (the two Help-to-Buy schemes).
There are two questions here: is there a worrying risk of home owners excessively increasing the size of their mortgage debts; and is the revival of house prices once again creating the dangerous illusion that we are all so wealthy that we can borrow and spend as if there is no tomorrow?
Now I don't want to sound too Eeyorish here.
There is also a respectable argument that risk-averse businesses never start investing again properly until they see consumers spending confidently for more than just a few weeks.
The lesson of recent British economic history is that consumer spending almost always leads any economic recovery, that it is naive to expect that first surge of recovery to come from anywhere else but shoppers.
But if, over the longer term, the UK's economic growth does not lessen its dependence on consumer spending - if more momentum does not come from trade and investment - then we will be bust again all too soon.
I am guilty of painting our economic recovery in the three months to June as being a bit uglier and less balanced than perhaps it was.
Of the growth of 0.7%, 0.2% came from "distribution, hotels and catering" (broadly the retail bit of the services industry).
Analysed in a different way, by expenditure (as opposed to output) we get the same result: household consumption contributing 0.2% of the 0.7% growth.
So broadly consumer spending is behind about a third of the current recovery.
But imports have been rising slower than exports, and the UK's trade deficit has narrowed (though it is still bigger than most would see as comfortable).
A narrowing of the trade deficit therefore contributed 0.3% of the quarter-on-quarter growth.
To put it another way, we are still quite along way from paying our way in the world, by selling more abroad than we buy from overseas. But at least - and at last, some would say - we are moving nearer balance.
If you are interested, by far the biggest contributor to the recovery in the second quarter, was a surge in pay - which the Office for National Statistics puts down to a huge jump in bonuses.
Lots of bonuses were paid after the end of the last tax year, to take advantage of the lowering by five percentage points in the top rate of tax.
This increase in employee compensation, the biggest since 2000, will not be sustained - which suggests there may be a drag on growth in the latter half of the year.