More (fairly) good news
Today’s figures for the Purchasing Managers’ Index for services are reasonably good by recent standards, but still low compared with the picture before the recession. Overall, they suggest the future of the economy is now very dependent on manufacturing exports.
On Monday, we noted that the Markit/CIPS Purchasing Managers’ Index for manufacturing results were very good, showing the first increase since May and a surge in export orders. Yesterday’s results for the construction sector – which has been a major component of the good GDP growth figures in the last couple of quarters – weren’t so good. The survey the index is based on showed respondents blaming worries about the cuts and it is unlikely that construction will sustain overall growth from now on.
The PMI is based on a survey of purchasing managers, and a figure over 50 shows growth. Today’s figure – 53.2, up from 52.8 for September – is reassuring, but still below the 57+ that was normal before the recession. Markit notes that growth rates are still low – again, companies are worrying about the impact of the cuts – and employment was “slightly lower”.
David Noble, Chief Executive Officer at the Chartered Institute of Purchasing & Supply said:
Whilst the private sector has been set the task of picking up the pieces and making up the shortfall of job losses in the public sector, it’s hard to tell at this point where the necessary demand and new contracts will come from to make this happen. The trend in staffing levels remains weak as companies choose not to replace leavers and instead focus on efficiency drives as caution and uncertainty hangs in the air.
Markit’s overall assessment of the three surveys is “economic growth set to slow, but risk of double-dip recedes.” I’d certainly concur with their comment that the figures for construction and services “leaves manufacturing as the main driver of the recovery” and that exports are becoming particularly important. The best news in this week’s data is the fact that the manufacturing PMI showed strong growth in export orders – something that the Bank of England’s regional agents have also been reporting on.
I’d add a couple of thoughts to that. One is that it’s quite possible that we’ll avoid going back into recession (two quarters or more of negative growth) – but at best growth is going to be too low to create many jobs. As Tim said to me the other day, “a 0.4 per cent contraction may be a recession and 0.4 per cent growth a recovery, but the two would not feel very different.”
The other is that pinning all our hopes on manufacturing exports is a bit like having our fingers crossed. The rest of the world is hoping to export their way out of recession too; we can’t all do that unless someone discovers life on Mars pretty quickly. Successive governments have let manufacturing’s share of jobs and wealth shrink over the decades, so the growth will have to be pretty spectacular to sustain the rest of the economy. The performance of Britain’s manufacturing companies has been the best economic news in recent months (it started too soon for the current government to claim the credit, by the way) but I wish we had a bit more to pin our hopes on.