The Service Sector PMI: 5 Quick Thoughts
Following strong construction and manufacturing PMIs last week, this morning the closely-watched survey of purchasing managers in the all-important service sector has reached its highest level in 6 and half years.
Taken together the three PMIs point to quarterly growth in Q3 of up to 1.5% (yes 1.5% in one quarter – an annualised growth rate of 6% – which would be the strongest since 1999).
Five quick thoughts:
First – this feels like it might be getting a bit ahead of itself. There is obvious evidence that the economy is picking up but I’d be surprised by growth that fast in Q3. That said growth of around 1% in the quarter would not be a huge surprise any more. I do, as I noted last week, expect growth in 2013 to be somewhere north of 2%. I guess it’s now a case of just waiting for the official data.
Second – whilst growth is obviously welcome, now is not the time for complacency. The recent pick-up in growth has been based around consumer spending, falling savings ratios and not been accompanied by any evidence of rebalancing. This may change in the future but currently it looks like a return to the pre-crisis growth model with all the problems that entails.
Third – the real measure of the recovery will be found in falling unemployment and rising real wages and living standards. We have a triple crisis of jobs, wages and investment and a very long way to go to get out of them.
Fourth – as I wrote last week, this pick-up in growth could have a big impact on the public finances both in the short run and the long run. The post 2015 ‘blackhole’ may be smaller than thought.
Finally – the nature of the challenge facing Mark Carney at the Bank of England is changing. At the time of his appointment the talk was of stagnation, triple dips and kick starting a recovery he may find himself presiding over monetary policy in an economy experiencing unbalanced growth and (possibly) booming asset prices. Wednesday’s announcement from the Bank on the nature of its ‘forward guidance’ will be fascinating.