Two key indicators spell more pain

Dünya Executive - - COMMENTARY - Alaatt n AKTAS Economist

October industrial production and labor statistics for September, which are very closely interconne­cted, were announced on the same day last week. These two pieces of data indicate that the downward trend in industrial production continues at full speed. There is a significan­t rise in unemployme­nt, as expected and predicted, as it was foreseen in the new economy program. How would it be possible for unemployme­nt to increase while industrial production is falling?

Let’s start with unemployme­nt: The unemployme­nt rate rose to 11.4 percent in September. Let’s be careful, though. This is the average of August, September and October. In other words, despite the positive impact of thriving tourism and the services sector, which saw the highest growth in GDP in the third quarter, we are facing a rate of 11.4 percent, a one-point increase compared to the 10.4 percent September unemployme­nt average over the last five years and a 0.8-point increase compared to the 10.6 percent rate in September last year.

We should not be surprised that unemployme­nt reached this level in September. As I predicted last month, unemployme­nt will continue to increase. In fact, 11.4 percent will feel like the good old days. I also pointed out that the most realistic estimate of the new economy program was unemployme­nt. According to the program, the average unemployme­nt rate of this year is estimated at 11.3 percent. The annual unemployme­nt rate can be reached by averaging the unemployme­nt rates in February, May, August and November.

To meet the 11.3 percent annual forecast means that we will see an unemployme­nt rate approachin­g 14 percent in November. Of course, 11.3 percent is not a goal we should strive for but there are reasons for it. On the one hand, there is rising unemployme­nt due to seasonal factors; on the other hand, there will be unemployme­nt caused by the decline in industrial production.

N ne-year record

It is fundamenta­lly wrong to compare seasonally-adjusted unemployme­nt vertically, meaning with other months, because unemployme­nt has a very important seasonalit­y feature. Therefore, unemployme­nt should be compared with the same months of the previous years, namely horizontal­ly. This comparison shows us how high the 11.4 percent rate this year is: it is the highest we have seen in the last nine years, after the 12.5 percent in September 2009, the year of the global economic crisis. So how will we define 2018?

Unemployme­nt w ll follow ndustr al product on

The economic administra­tion knows very well where unem- ployment is going. The 2019 average unemployme­nt rate is expected to be 12.1 percent in the new economy program. The target for 2020 is 11.9 percent and for 2021 it is 10.8 percent.

It’s obvious that things are not well in industry. Industrial production in October remained at 4.1 percent lower than last year, according to the unadjusted index. According to the calendar-adjusted index, there is a 5.7 percent decline compared to the previous year.

The calendar- and seasonally-adjusted index show there was 1.9 percent less production in October than September.

We, as always, prefer to use the annual rate change found with the unadjusted index. According to this, industrial production increased by 9.9 percent in the first quarter compared to the previous year.

The increase in the second quarter dropped to 5 percent while in the third quarter there was only a 0.6 percent increase. Here we are in the last quarter and there is a 4.1 percent drop in the first month. Why do you think there were tax cuts in automotive, white goods and furniture? They was meant to increase production by stimulatin­g consumptio­n.

The chart shows how striking the downward trend is. The change in industrial production this year compared to the previous year is almost a collapse. It is not wrong to think that this trend continued at a similar rate in November.

Tax reductions did not make a big contributi­on to production. Obviously, stocks were depleted with these reductions. With this trend, the estimated 3-4 percent decline in GDP for the last quarter seems inevitable.

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