The past couple of days have provided an interesting exercise in reading the economic data. On Thursday there was the Purchasing Managers’ Index for services and yesterday we had the Halifax House Price Index and the Society of Motor Manufacturers and Traders‘ analysis of new car registrations.
All are a bit depressing, to be honest, but there’s enough mixed news to make interpreting them far from easy. The Services Purchasing Managers Index was the most important. After another good Manufacturing PMI earlier in the week I said that the Services PMI “will be an important indicator to watch” because services account for such a huge share of the economy these days. The Services Index was 52.6, down from 54.5 in January; this survey has been showing the sector losing jobs for five successive months and input price inflation “remained historically steep.”
This is depressing. On the other hand, any figure over 50 indicates growth, so we’re not in recession territory here and the sub-index for new business showed the biggest increase since June. 54 per cent of the purchasing managers responding to the survey had “positive expectations” – the highest level for nine months. One reason I like this survey is the fact that Markit (who produce these data) play it straight. They reported that their figures suggest some return to the levels of growth before the dreadful drop-off at the end of the year, but the “underlying trend in GDP [is] ‘flattish’.”
Yesterday’s Halifax House Price Index was down 0.9 per cent from January, more than reversing last month’s 0.8 per cent increase. Prices in February were 2.8 per cent lower than they were in February 2009 – the fourth month running that the annual change has been negative. This is a slow puncture, with very few properties are coming on to the market. Over 2011 as a whole the Halifax expects house prices to come down by a “modest” 2 per cent. This is put down to “uncertainty over the economic outlook” – a phrase that highlights why this is a rather depressing piece of economic evidence. The deflation of house prices despite low interest rates indicates the depressed state of domestic demand and the negative impact of people’s gloomy anticipation of the cuts.
Again, the newspapers put a bleak gloss on this news, with the Telegraph talking about a “bleak economic outlook” and the Independent warning that any interest rate increases will send house prices falling further and faster.
Finally, we have the SMMT’s monthly analysis of car registrations. Private car sales give us an insight into the outlook of the household sector – like housing, cars are a substantial purchase, and for most people, its a commitment that depends on confidence they’ll have the funds to pay off the debt over a period of more than a year. At the same time, fleet car purchases are a barometer for business confidence, and for some companies a key message to staff about the prospects of the organisation that employs them.
SMMT has an interest in talking up the market, and so put a positive spin on the fact that, while new car registrations may have fallen – by 7.7 per cent compared with February 2010 – this was by less than expected. With more reason, they pointed out the stronger fleet performance. While private sales were down 26.7 per cent from a year ago, fleet sales were 8.6 per cent up. This is good news – its a sign that the business sector has resources available for expansion later on this year.
But some of the media coverage of the story was still negative. The Guardian’s first headline was “Car sales slump again as Britons tighten their belts,” later on they linked it to their coverage of Martin Sorrell’s comments about “third division Britain.”
What interests me is the change in the way a very uncertain and unclear economic prospect is being described in the media. At the end of last year, most commentators were hedging their bets, pointing out just how uncertain things were. Over the past couple of months we seem to have swung to much more emphasis on the negative.
It could be the time of the year, it could be the general sense that everyone is browned-off with the government. Whatever the reason, I think that this shift isn’t really justified – the prognosis is every bit as difficult as it was in December.
Now, don’t get me wrong, these reports aren’t exactly brilliant news. All of them confirm my belief that the economy is still too shaky to take the weight of such heavy cuts. None indicate that the labour market is going to boom – if the economy continues to recover after the winter hiccup, it still looks like being a jobless recovery. But there is the potential for growth later on in the year – it’s hardly a guarantee, but it is a hope that’s worth hanging on to.