Good news on services – but don’t go overboard
Well, the foreign exchange markets certainly liked today’s services Purchasing Managers’ Index results – the pound rose to its highest level against the dollar for three months. The manufacturing index a couple of days ago reached record heights, and yesterday’s construction index was reasonably good, showing output returning to growth, though jobs are still being lost.
But, as I’ve found myself saying a lot recently, services account for two thirds of the economy, let’s see what the services PMI looks like. And it was very reassuring; where the December figure of 49.7 represented a slight contraction, the January figure of 54.5 was the highest since May. Some commentators have drawn the conclusion that these figures show that the terrible figures for GDP in the 4th quarter were misleading, but Markit (which produces the Index) is cautious. They point out that the survey shows jobs still being lost in services, and “just as the December data were subdued by the weather, the January numbers were boosted by businesses returning to normal and, in some cases, receiving additional orders displaced from December.”
Taking all the Indexes together, Markit believe they are “consistent with” an underlying trend rate of growth of 0.4 per cent a quarter. Now, if you’re expecting a contraction, an annual rate of 1.6 per cent looks pretty good, but that would actually be well below the UK’s trend rate of growth. The underlying reality still looks much as it did a week ago: a slowdown, but with manufacturing doing much better than the rest of the economy.
Finally, the surveys these indexes are based on showed jobs being lost in both construction and services. And, as Tim has pointed out, manufacturing output may be doing well, but industry isn’t creating a lot of jobs at present. “Jobless recovery” may be one of those phrases from the past we have to re-learn.