Posts Tagged ‘green shoots’

It was told here a couple of weeks ago how there were signs of green shoots. For example, industrial production in July saw its biggest month on month rise in 25 years. No less than 236,000 more people gained employment in the three months to the end of July.

That’s all very encouraging, but…

Last week saw the latest Purchasing Managers’ Indices (PMIs) from Markit/CIPS, and to put it mildly they weren’t very good.

In a nut shell, the PMI covering UK manufacturing fell from a score of 48.7 in August, which was poor, to 47.6 in September.  Bear in mind, any score under 50 is meant to denote contraction. The PMI for construction improved, but only mildly and from a low level. It rose from 49 to 49.5. As for services, the Business Activity Index fell from 53.7 to 52.2. Put them all together, allow for the importance of each of the three sectors to the UK economy and you get a composite reading of 51.1 from 52.2 in August. Markit reckons these indices suggest quarterly growth of 0.1 per cent.

Okay, that’s not much growth, but at least it is growth. Does that not mean the three reports combined suggest the UK is slowly pulling out of recession? Well maybe. But just bear in mind, that earlier this year when official stats proclaimed that the UK was in recession, cynics pointed to other data which painted a slightly more positive image of the economy.

Put it this way, when the Office of National Statistics said the UK was in recession, the PMIs suggested mild growth. Now the PMIs have deteriorated.

Sorry to leave this on such a downbeat note, but the PMIs indices covering employment painted an even worse picture. The PMI employment index fell to 48.1 – that’s a ten month low and consistent with unemployment rising.

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This is no wind up. The last week or so has seen hints. The green shoots may not be big, peeking above the surface like scared mice, but they have been there all the same. So is this for real? Has the recovery begun?

Yesterday on the Andrew Marr Show former Prime Minister John Major said: “Recovery begins from the darkest moment. I’m not certain, but I think we have passed the darkest moment.”

So what’s the evidence?

Earlier this month, data from the ONS revealed another rise in employment – this time up 236,000 in the three months to July. Elsewhere, data on July’s industrial production indicated the biggest jump in this sector for 25 years. The OECD took a look at the G7 and the four big emerging economies (BRICs) and saved its most bullish words for the UK and Brazil, which were the only countries that it said were due to see a pick-up next year.

The round of good news was completed by the Centre of Economics and Business Research (CEBR), which has forecast that 2013 will see the first rise in real incomes for UK households since 2009.

Looking beyond the UK’s borders, markets were c*ck-a-whoop. Both the US Fed and the Euro regions’ central bank – the ECB – have announced QE (or in the case of the ECB QE ish), and at last they are saying central bankers are taking decisive action. A report from ‘Financial Times Deutschland’ suggested that unit labour costs have fallen by 15 per cent in Greece since 2010, with significant falls also seen in Spain and Ireland. Greece saw its current account deficit fall by 54 per cent between 2007 and 2011.

Finally maybe policy makers are learning lessons. Vince Cable is agreeing to relax labour laws in the UK. David Cameron wants to cut down on red tape, and make it easier to gain planning permission. He wants to see an end to dithering.

Then there is the funding for lending scheme.  This is an idea that really seems to have struck a chord across the world, so much so that some economists in the US are now urging the Fed to announce a similar idea.

And finally, the World Economic Forum has released its latest league table showing the world’s most competitive countries. And guess which country moved from number ten on the chart to number eight? Yes, that’s right the UK. The usual suspects did better: Switzerland, Singapore, Finland, Sweden and the Netherlands. But of the G7 only Germany in sixth spot and the US in seventh scored higher.

Recessions are bad, of course they are, but they can have a cleansing effect. They can correct bad habits, get rid of bad ideas, and create economies that are more focused on ideas that work. The UK has had a torrid few years, but maybe it is now set to benefit from the correction.

Well is it? Read on…