Posts Tagged ‘markit/cips’

Of course it boils down technical definitions. The odds that the UK is not currently in the midst of recession are improving, but that does not mean the UK economy is in great shape.

It might also be worth pointing out, that actually the UK may not even have suffered a double dip, but that is no real cause for celebration either.

By the time the ONS has finished revising its data for Q4 2011 and the first two quarters of 2012, it may well revise its estimates for GDP up, so that they no longer show three months, or even two successive months of contraction.

But recession or not, what is true is that the UK’s total output is almost 4 per cent down on the peak recorded some five years ago. To celebrate that the UK did not suffer a recession during the midst of this particular downturn is like celebrating when your football team only gets beaten five nil, because the week before it was beaten seven nil.

According to our official compiler of statistics, the UK economy contracted by 0.3 per cent in Q4 last year, but over the course of 2012 expanded by 0.2 per cent, whereas it previously estimated flat growth.

UKGDP

But what about the here and now?

The Purchasing Managers’ Indices or PMIs from Markit/CIPS are as good a guide as any. In fact, they are typically a more accurate guide than early ONS estimates.

According to the latest PMIs out during the first few days of March, February was a bad month for manufacturing, and a bad month for construction, but services were sufficiently okay for recession to have been avoided.

Put the three PMIs together to form a composite and the composite PMI reading for February was 50.8, from 51.7 in January.

Any score over 50 is mean to be consistent with growth.

Markit reckons its surveys suggest the UK is on course for expanding at a quarterly pace of 0.1 per cent.

It’s growth, but not much growth.

On the other hand, service sector confidence about the year ahead lifted to its highest since last May and, according to Markit, at least some of the weakness in manufacturing and construction in February was due to business being disrupted by bad weather, meaning a brighter picture may emerge in March.

Markit did say, however that it is clear that the bad weather alone was not to blame for the weakness, and that underlying demand remains fragile. It said: “The underlying picture is one of a modest and hesitant upturn.”

The UK needs wage growth to exceed inflation, and then sustainable demand can lift GDP. It needs exports to rise, and it is being aided by recent falls in the pound in this respect. It needs greater investment to help improve the pretty awful productivity performance. Alas, it can’t have all three.

©2012 Investment and Business News.

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Do you trust the weather forecast? If you are really sad, like perhaps someone not a million miles away from the computer this article is being written on, you may start checking the weather forecast on your iPhone with such regularity that you are in danger of believing what the iPhone says over what the view out of your window says.

JR Ewing once said to his wife, after she found him in bed with a young lady: “Sue Ellen are you going to believe me, or your lying eyes?” It’s a bit like that with that conflict between the weather and what the iPhone says. Your eyes say it’s raining. The pitter patter on your umbrella says it’s raining, but your iPhone says it’s not. So who do you believe: your iPhone or your lying eyes, ears and skin?

Economic data is a bit like that. The surveys say we are in recession, again, or pretty close. The official data is more optimistic. Who do you believe?

Take the Purchasing Managers’ Indices from Markit/CIPS. At the beginning of this year, they suggested the UK was expanding – albeit modestly. The official data said we were in recession. Which was one is right? Only time will tell, but it’s an irony that for all the talk about the danger of a triple dip recession it is possible we haven’t even suffered from a double dip.

But this is the worry. Of late the PMIs have been bad. The latest set pointed to contraction. So here is your question:  if the UK was officially in recession when the normally reliable PMIs said it wasn’t, what is the UK doing when the PMIs say we may be in recession?

If this was a soap, you could imagine the music cutting in it at this point, as we learn that we have to wait until next week for the next thrilling instalment.

It is just that National Institute of Economic and Social Research (NIESR) tells a story that probably pretty much says it all. See this graph.

Quite simply there hasn’t been a downturn like this one, not since before the 1930s, anyway.

And to really rub salt into the wound, some data out this week just added to the sense of woe. UK industrial output has fallen for three months on the trot, and manufacturing contracted by 2.1 per cent in the year to October. Of course that’s just data, but then since this is pretty much in line with what the amore anecdotal evidence from Markit is saying, we probably have to accept it is about right.

You can’t fight a crisis caused by too much debt by building up debt. That’s the classic reproach given to any who dare say we need a government backed stimulus.

Well that may be right, but consider this chart, which looks at the US fiscal deficit and compares it with what it would have been like if things had carried on as they were prior to 2008. This was taken from this piece at Real World Economics, click here for a fuller explanation:  Krugman uses misleading deficit graph 

The point is that it shows pretty clearly that if there had been no crisis in 2008, and the US had carried on growing at the rate we had become used to, US annual borrowing would be much much lower than it is.

In most cases government borrowing did not cause today’s woes, rather today’s woes caused government borrowing. And by the way nowhere is this more true than in Spain, which had much lower government debt before the recession than any other large developed economy in the world.

Then there’s the TUC. It has produced a report which shows that over the last 30 years the share of GDP taken up by wages has fallen from 59 to 53 per cent, while corporate profits’ share has risen from 25 to 29 per cent. You might ask: so what? It is just that for an economy to grow it needs demand to grow, and for demand to grow wages must rise. Over the last 30 years this has not been happening to a sufficient extent to create sustainable growth. Furthermore, while corporate profits have risen, investment has not risen in tandem. Instead, rising corporate profits helped to lead to more savings sloshing around the system, pushing down interest rates, and pushing up asset prices such as house prices.

It is true that the noughties boom was built on credit. But the credit seemed reasonable because it was backed by rising house prices. The fact that GDP was not trickling down into wages did not mean lower growth, as instead it was trickling down into consumer borrowing.

The TUC blames the City. It says that the City has crowded out the rest of UK industry. Well to the extent that success in the City led to a higher pound, making it harder for manufacturers to compete, it may have a point.

But surely the real reason why profit growth has been outstripping growth in wages is down to technology. Economists are so busy denying that technology is creating growth, that they are missing the real story. Technology is creating fantastic potential for wealth creation, but right now it is also leading to the widening gap between the reward to capital and the reward to labour.

With 3D printing just a few years away from becoming a mass market product, and with nano technology perhaps a decade or so behind, it is hard to believe that the trend of the last 30 years is going to reverse.

Anyway, talking of house prices, is that a hint that they may be rising next year? Click here to find out more

©2012 Investment and Business News.

Investment and Business News is a succinct, sometimes amusing often thought provoking and always informative email newsletter. Our readers say they look forward to receiving it, and so will you. Sign-up here

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.

©2012 Investment and Business News.

Investment and Business News is a succinct, sometimes amusing often thought provoking and always informative email newsletter. Our readers say they look forward to receiving it, and so will you. Sign-up here