Posts Tagged ‘purchasing managers indices’

The FTSE 100 finished Monday 11 March at 6503. That was a five year high, just 217 points off a decade high (set 31 October 2007), and 426 points off an all-time high (set 30 December 1999).

As an aside, it is quite interesting to note that the FTSE 100 decade high occurred after the run on Northern Rock. I find it hard to imagine  what madness possessed the markets to show such exuberance when the signs of problems ahead had been writ large on the wall.

The question is: are the markets mad this time, too?

The news from the UK is not very good. But then there is this thing called the global economy, and perhaps what really counts is how the rest of the world is doing. Besides the FTSE 100 is not really a bellwether of the UK at all; after all, many of the companies listed on this index do most of their trading abroad.

The news from our two biggest trading partners is okay. In the US, annualised GDP was a tiny 0.1 per cent in the final quarter of last year, but there are reasons for believing this was a one off, and the poor performance was mainly explained by falling inventories and cuts in defence spending. Other data is far more promising.

The latest US Consumer Confidence Index from the Conference Board was 69.6. Okay that was down from the heady heights of 73.1 seen in October when the index hit a near five year high, but not a lot down. More to the point, the index rose sharply on the month before.

US Consumer Confidence

The latest Purchasing Managers’ Indices (PMIs) are promising too. The index tracking non-manufacturing hit a 12 month high, and the index for non-manufacturing rose to a two year high.

Finally, the news on US jobs is promising, with February seeing an increase of 236,000 non-farm jobs. In fact, the US unemployment rate fell to 7.7 per cent, which is the lowest level since George Dubya and Dick ruled the roost at Capitol Hill.

All in all then the data coming out of the US, is not bad. Sure you can be cynical, and say it won’t last or the US is built on a bubble, but the US does at least provide a rationale for surging stock markets.

The news out of our second largest trading partner is not quite so good, but it is still all right. The Germany economy contracted in the final quarter of last year, but the various surveys including PMIs (the Germany composite was 53.3 in February), Zew index and German IFO all point to a much better performance in Q1.

Next on the list of main exports markets is the Netherlands. The Dutch economy contracted by 0.2 per cent in Q4 last year after contracting 1 per cent in the quarter before.

But it is when we look a little further down that things are looking worrying. Our fourth largest export market is France. The French economy contracted by 0.3 per cent in Q4, a smaller contraction than Germany. But, unlike Germany, the latest Purchasing Managers’ Index was bad; at 43.1 it pointed to the contraction continuing, and the latest data on French industrial production showed a 1.2 per cent contraction.

More worrying still, our seventh largest export market is China, and things have turned for the worse. UK exports to the economy on the other side of the Great Wall have risen eight times since 2000. Earlier this year it appeared as though China was over the worst and on the mend. Not so says the latest data: growth in both industrial production and retail sales in the year to January  and February was down on the year to December. Investment into bubble areas, such as property and infrastructure is still surging, but investment into other areas, which can create sustainable growth, is not.

Markets may be riding a tide of euphoria.

But the tide may yet go into reverse.

©2012 Investment and Business News.

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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.


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

When the Office of National Statistics (ONS) revealed data to show the UK economy was contracting again at the end of last year, a lot of people were surprised.

So cast your mind back to January 2012, or 25 January to be precise. The UK’s official statistical authority released data showing that the UK contracted by 0.2 per cent in Q4 2011. At the time, many economists said they didn’t believe the data.

When the ONS updated its figures, many thought they would be revised upwards, but instead the data got worse – so much so that now the ONS has the UK contracting by 0.4 per cent in Q4 of last year.

But the puzzle related to the Purchasing Managers’ Indices (PMIs). The PMI for manufacturing stood at 49.6 in December 2011, the PMI for construction stood at 53.2 and for services at 54. Markit, which was the co-complier of the PMI data, said that the figures were consistent with zero growth in the quarter. At the time many economists said that they thought the PMIs gave a more accurate picture.

Three months later, the story was even more puzzling. According to the ONS, Q1 2012 saw 0.3 per cent contraction. In March 2012 the manufacturing PMI stood at 52.1, the index covering construction stood at 56.7 and the index for services stood at 55.3. Markit said the data was consistent with growth of 0.5 per cent.

Even more economists said they thought the PMIs gave a more accurate story.

And yet the ONS data just carried on being bad. In fact, it finally recorded three quarters of contraction: Q4 2011, and Q1 and Q2 this year. It was a puzzle, all right.

Now forward wind the clock to today. The ONS recorded a 1.0 per cent growth rate in the quarter just gone. Yippee, thank goodness for that news.

Except the PMI for manufacturing in October was 50.6; for construction it was 50.9 and for services 47.5.

The fact is that when the UK economy was supposedly in recession Markit data suggested growth.

Right now it is consistent with contraction.


©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

In the garden the weeds and the green shoots seem pretty evenly spaced.

Here is one green shoot. UK industrial production rose by the highest level in 25 years in July. Here is the weed: in August it fell back, and despite the previous month’s rise, year on year industrial production in August was 1.1 per cent below the level from the year before. So far then, the weeds seem to be strangling all those budding flowers.

The Centre of Economics and Business Research (CEBR) predicted that next year inflation will fall below the rate of increase in average wages, leading to us all feeling better off, and so the economy should expand. In a similar vein, the latest report from the Ernst and Young Item Club has forecast falling inflation and rising house prices. Here is its chief economist Peter Spencer: “Inflation is coming back to heel, private sector employment is holding up, and the housing market also looks poised for a revival.” The Item Club reckons the economy will contract 0.2 per cent this year, grow by 1.2 per cent in 2013, and by 2014 in 2014. Yet, this leaves one question.  Why is it that ever since the UK fell into recession in 2008, economists have been predicting that the year after next will be better, and growth will be back to normal?

The National Institute of Economics and Social Research (NIESR) has been spotting weeds and green shoots. Last week it said that, according to its calculations, the UK expanded by 0.8 per cent in the three months to September. “The most robust rate of growth since the three months to July 2010,” it said.

But then it added: “Stripping out the effects of special events (the reversal of the negative effect from the additional bank holiday in June 2011 and the allocation of Olympics ticket sales from last year) suggest underlying growth is closer to 0.2 to 0.3 per cent per quarter.”

But back to greenery, the employment stats are good; 236,000 new jobs were created in the three months to July. Later this week we will see the data for the three months to August, but will this confirm green shoots, or point to weeds? Cynics say that in any case, much of the recent rise was down to a jump in the number of part-time workers.

And finally, there are the PMIs, or purchasing managers’ indices, as they are also called. The latest composite figures, combining manufacturing, construction and services fell in September to a level consistent with growth of just 0.1 per cent.

What is worrying, however, is that earlier this year the PMIs suggested mild growth, but the official data said recession. Since then the PMIs have got worse.

The PMI tracking employment fell to a ten month low in September.

Strictly speaking, of course, weeds grow from green shoots. But the fact is, right now evidence of a recovery seems to be based on optimistic projections rather than hard data.

©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