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Estimating the local impact of the recession

31 October 2008

By Paul Miller

The depressing news about the recession was that it was no less so for being unsurprising. The data ONS released last week showed GDP decline across sectors and the economy as a whole. But what's going to happen where i live? Or where you live?

The regional forecasters will turn the handle on their black boxes and give us an answer and we'll all wonder "how on earth did they get that number?".

Well we've had a go and consistent with our commitment to be transparent in all that we do, here's how we did it.

Official Government data shows GDP growth / decline by industrial sector (manufacturing, construction etc). The data does not show regional difference. However, it is obvious that regional impacts will be different because industrial structures are different. A place with only manufacturing and nothing else, would experience an impact very different from one with only financial services. The mix will have an effect, as will the productivity of sectors, the exposure of them to foreign markets, the experience and skill of managers and so on.

What we have done is assume that there is a more or less direct relationship between jobs and GDP; that a 2% drop in GDP in a sector would result in a 2% loss in employment in that sector. We have also assumed that national trends in GDP are reflected locally. Then we have considered the proportion of local employment by sector, and the national GDP change by sector, and apportioned accordingly. Of course, our figures need to be interpreted in the light of local knowlege; if a large employer were to close the impact would clearly be much greater than our figures would suggest. Conversely, a sector which is comparitively strong and competitive will stand up better than one which is weak.

What our approach does in particular, however, is provide an appreciation of the areas of impact of downturn / recession

Our methodology produces a total jobs impact across Great Britain of around 176,000 jobs. This is less than the impact suggested by some. However our approach gives estimates by sector and locale.

The major unknown across Great Britain is the speed of the downturn itself.

So what are the findings locally? Well you will be able to see for yourself on a specially prepared version of G-View - at the end of next week. I can tell you that in terms of the raw numbers there are few surprises - but in terms of the percentage impact, there are one or two!

Permalink: http://www.gavurin.com/estimatingrecession (copy'n'paste)

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