By Michael Baxter 1 Mar 2010 [0 Comments | 264 views]
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The UK economy may have only limped out of recession during the final quarter, but if the latest data from CIPS/Markit is any guide, manufacturing is positively booming. The latest Purchasing Managers Index – which is one of the most closely watched of all economic indicators – stayed firm in February, scoring 56.6. Okay, it is just numbers, and on its own a reading like that means nothing. To put this reading in context, however, any score above 50 is supposed to indicate growth. More to the point, the January reading was the highest score in 15 years. There seems little doubt that UK manufacturing is enjoying something of a recovery, which in turn charged the UK’s move out of recession. But it seems the recovery is inventory led, and is largely explained because customers ran their inventory down so low that they simply had to start re-ordering. The story is not unique to the UK. The inventory-led recovery seems to be a world-wide phenomenon.
And the reason why the UK’s growth rate was lower than in most other developed economies in Q4 is simply because manufacturing makes up a smaller proportion of the economy. Therefore, the UK is benefiting less from the turn in the inventory cycle.
Alas, there is sparingly little reason to give us hope that once the one-off effects of rebuilding stock wear off, that the recovery will continue. The truth is, the entire world seems to be relying on exports to prompt growth. But as you know, the entire world can not export more than it imports. It would be the equivalent of saying every team in the Premiership expects to win all their remaining matches.
Meanwhile, profits at HSBC are down 24 per cent. Then again, the fall was down to a re-pricing of assets. That is a good thing. Banks can not start rebuilding properly until they have fully accounted for their losses and declining asset values. This was the problem in Japan, when banks seemed unwilling to admit to the true extent of their woes.
Meanwhile, the bank has been saying all the right things on the bonus front. HSBC chairman Stephen Green said: “We have witnessed unacceptable distortions – from rewards linked to unsustainable or illusory day one revenues, which encouraged risk-taking; to multi-year guaranteed bonuses with no performance criteria.
“Remuneration must be firmly tied to sustainable performance and must not reward failure.”
Here are two interesting things about Mr Green. He has waived his own bonus, and last year he penned a very thoughtful book entitled: The Value of money – Reflections on Money, Morality and an Uncertain World.
Here are two quotes from his book:
“From Edward III onward -– who in 1339 repudiated his debt to his Italian creditors, thus bringing about the collapse of several Italian banks and bringing widespread misery in Florence -– the history of world finance could be told as a constant succession of crises.”
And “Globalization is about something far deeper than economics, commerce and politics. It is an evolution of the human spirit.”
