The Times gets it wrong about the economy

The level of understanding of the economy in the general media sometimes leaves me astounded. Coverage of the Gross Domestic Product (GDP) data in the The Times is a case in point.

Look, the economic situation is not great but let’s just make one thing clear: yesterday’s GDP data does not show that South Africa is in a recession. It shows that South Africa was in a recession in the final quarter of 2008 and the first quarter of 2009, that is, from about October to about the end of March. The economy may still be contracting, but the data does not show that. We’ll only know for sure in three months’ time whether we’re still in recession now.

Yet the headline in The Times trumpets: “South Africa is now in recession”. The sub-head is even more inaccurate:  “6.4% drop in GDP stuns cabinet and signals deep recession”. The data may have stunned Cabinet (though why it should, I don’t know; the writing has been on the wall from some time). But signalling something means warning that it is about to happen. This drop in GDP happened months ago. It is history; it doesn’t signal anything.

What’s more, the 6.4 percent decline in GDP is a quarterly figure, and it is quite possible that the economy will record positive growth on average over the whole year. Even the worst doomsayers are predicting a contraction of between1 and 2 percent for 2009. Deep recession? I think not, and The Times should be more careful about what it advises its readers to do. It is too late to “cut up your credit card” now, as The Times suggests, and if all South Africans followed the newspaper’s advice, we’ll dig ourselves into a much deeper hole, because consumer spending remains the driver of the economy. The last thing we need right now is for everyone to stop spending. It is true that people should try to avoid unnecessary debt. But they should always do that, and Times readers who did during the good years – and remember, we had many; 17, to be exact – won’t have to worry about a recession now. Those who didn’t – well, if they survived the past two years of high interest rates, there is no reason why the coming months will be any more difficult. Lower interest rates will, in fact, give them some breathing space.

Yes, we have had job losses, and there will probably be more. But any business which, as a result of these figures, decides to “go into survival mode and try to cut costs through retrenchments” will be making a big mistake. Businesses should react to the current economic situation and the economic outlook, not the past. And the reaction of the stock market to yesterday’s data tells us that businesses see things differently. The JSE’s All-Share Index rose (and continues to rise today), in spite of a big drop in the share price of one of its biggest constituents, MTN, due to misgivings about that company’s planned merger with an Indian rival. The rand, too, has held up, and bond yields hardly moved. Investors are telling us they think the worst is over, not, as The Times imagines, just beginning.

And what about this bit of economic illiteracy: “This is the worst figure since the third quarter of 1984 when GDP was at -6.5 percent”. GDP is the amount, in money terms, produced by the economy. It can grow or contract by 6.5 percent, but it cannot be “at -6.5 percent”. Here’s another: “Yesterday, Statistics South Africa said gross domestic product growth slowed by a shocking 6.4 percent in the first quarter.” Statistics South Africa said nothing of the sort. It said GDP contracted by 6.4 percent, after taking into account inflation. It didn’t grow at all.

Coverage by the specialist news media such as Business Day and Fin24.com has been competent. But most ordinary people don’t learn about the economy from those niche media. They get their news from general media such as The Times, and when it comes to the economy, they are badly served.

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16 Responses to The Times gets it wrong about the economy

  1. Ray H says:

    Robert. Please think before your post unwisely. If you had read our story to the end (always a good idea if you are going to mount a high horse) you would have read this sentence: “Economists expect two more quarters of negative growth before the economy improves”. This view was not contested by a single economist we approached. This is why we say we ARE in a recession right now.
    You then question the accuracy of our subhead, suggesting that Cabinet was not surprised and adding that the 6,4% number does not signal anything. Well, the fact of the matter is that Cabinet WAS surprised by the first quarter number. How do we know? We approached a senior official who told us this. We did not make it up. And the 6,4% figure DOES signal that this recession (which all agree we are in) is worse than anticipated. As for your criticism of the advice about spending and on “economic literacy”, I am astonished.
    Don’t be patronising.

  2. Bruce Gorton says:

    We at The Times did not get it wrong.

    First off:

    “6.4% drop in GDP stuns cabinet and signals deep recession”

    Well, considering it is the first recession we have had in 17 years, and it is the biggest drop since the mid-1980’s, it is a pretty stunning figure.

    The second quarter, which is the quarter we are currently in, is also expected to show negative growth so to say we are in recession is a fair cop.

    Further, it “signals” a deep recession, in that it “indicates” a deep recession. Considering the size of the figure calling it a deep recession isn’t actually bad.

    Particularly given that other indicators aren’t exactly brimming with positivity – General Motors is going under (Which should hit PE) and it is still too soon to say the financial crisis is over.

    As to our growth, we aim at about 5% growth as a country, an aim we have largely met over the last 17 years.

    Personally, I agree that retrenchments are not the solution to the recession, however it is well known that whenever a recession comes companies take them as a chance to retrench people, as well as give lousy increases.

    People in a bad situation tend to spend their credit cards and only pay the residual, a habit of spending which ends up costing them more than if they only spend the amount they have in cash – ending up with them being in a worse situation they were in to start off with.

    The Times’ and later in the article Shapiro’s advice to avoid this situation is actually pretty sound.

    If you can’t bank on getting a decent increase the best advice is in fact to limit your credit-card spending – and limit the debt you take on in general.

    As to savings: Our currency is historically highly unstable, savings signal a trust that our currency will be worth something when it comes time to withdraw money.

    With high risk aversion hitting emerging currency markets and our tendency to import goods rather than manufacture them locally, anything that helps our currency maintain its stability is a pretty good thing.

  3. Bruce Gorton says:

    Correction to the above:

    General Motors going under hasn’t quite happened yet – it is just looking increasingly likely as June looms and its bond-holders have rejected the solution prefered earlier. To clarify it is General Motors America that looks to be going under.

  4. Travis says:

    Well said, Ray. Nothing worse than pompous hacks pontificating on the alleged incompetencies of other hacks, when what they really need to be doing, is taking a good close-up look into the mirror.

  5. Robert says:

    Hi Ray

    Thanks for your comments.
    1.I did read yur story to the end. I don’t think you read mine. I was commenting on your depiction of the 1Q GDP data released by Stats SA yesterday. I did not say we are not still in recession. I am saying your story incorrectly projects historical data into the present. I stand by that opinion.
    2. I didn’t suggest cabinet was not surprised; I said I don’t understand why they should be.
    3. If you could be more specific about your comment on economic literacy, I could respond. Are you saying the language your report used was correct?
    4. Patronising? Come on.

    • Ray Hartley says:

      Robert,
      1. We clearly reported it as a “first quarter” GDP number. What more could we do? “First quarter GDP down a tad” wouldn’t really fly as a headline, so we counted on our readers’ intelligence.
      2. Don’t weasel out of this. You clearly suggested that we were over-reporting this, Robert.
      3&4. You said: “GDP is the amount, in money terms, produced by the economy. It can grow or contract by 6.5 percent, but it cannot be “at -6.5 percent”.”
      That, my friend, is patronising. Readers understand this phrasing perfectly.

      • Robert says:

        1. Come on Ray. It is wrong to portray the 1Q GDP data as saying that South Africa “is officially in recession”. Go and look at how Reuters, Business Day, etc. reported the release. They all reported, correctly, that South Africa WAS in recession in 4Q 2008 and 1Q 2009. That is not to say that we are not still in recession – we may very well be – but the GDP data does not show it.
        2. You misunderstand me.
        3. It is careless and incorrect language. If you’re OK with that, that’s your call.
        4. How do you explain the market reaction to the GDP data? Investors saw a “deep recession” coming, and promptly started buying stocks and rand and selling bonds?

  6. Robert says:

    Travis

    I may be pompous, but I am not a hack. I am an academic. I used to be a hack. And when I was, I knew the difference between an economic contraction and a slowdown in growth.

  7. Robert says:

    Bruce

    Thanks for your considered response. I don’t disagree that we are still in a recession; I just said that yesterday’s GDP data does not show that.
    As to the advice to “cut up your credit cards”, read David Shapiro’s comment carefully. He is saying exactly what I say: don’t take on unnecessary debt (but no need to “go into a hole”. As I point out, that is good advice at any time, not only in a recession.

  8. Edward says:

    All well and good but a lot of semantics ie. minus equals exactly that: a contraction / smaller.

    Are you trying to educate the people or are you a little bored?
    whoever has a little knowledge of economics knows that it is a trailing indicater (must i explain that in the next 500 words :)?)

    • Robert says:

      “…whoever has a little knowledge of economics knowns that it is a trailing indicator…”
      Yes, Edward, my point exactly. Does The Times?

  9. Ray Hartley says:

    PS: Why did you say: “… the headline in The Times trumpets: “South Africa is now in recession”.?”
    Our headline was “Down the tubes” in all our editions today. ??

    • Robert says:

      I was referring to the headline on your web page. I like the headline in your print edition even less. Down the tubes? You must be joking. The South African economy is very far from being down the tubes (especially if you take into acocunt the international context), but the problem is we can talk ourselves into a worse hole than we’re in, and this kind of reporting contributes to that.

  10. Duncan Lapel says:

    I’m not sure the faculty of the Rhodes School of Journalism should be lecturing the public on accuracy.

    “Professor Guy Berger overseas all the school’s projects.”
    (http://www.ru.ac.za/JMS/Staff/)

    Or is Rhodes now outsourcing its projects?

    • Robert says:

      Touché!
      But just to make one point clear: this blog is my own and does not speak for on on behalf of the school of journalism.

  11. […] coverage matters A number of people, including editor Ray Hartley, have taken me to task for criticising The Times‘ coverage of the gross domestic product data released this week. I singled out The Times – as I have […]

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