Adam and Eve and Pinch Me went down to the sea to bathe, Adam and Eve got drowned, so who do you think was saved?” Answer: “Pinch Me,” of course. And pinch me and you and cynics and optimists alike may be called for after the latest surveys on the UK economy.
Take a look at some of the words/phrases used to describe the data – in ascending order of magnificence they include: "decent", "highest level", "encouragingly", "even stronger growth possible", "all time high”, and "impressive stuff".
So what has happened? Are we dreaming, or indeed do we need to take the latest news with a pinch of salt.
Let’s start the story with the Purchasing Managers’ Indices or PMIs, produced by Markit/CIPS and relating to manufacturing, construction and services.
The story of the latest manufacturing PMI was told here yesterday. In summary: the latest manufacturing PMI from Markit/CIPS, out on July 1, was 52.5 (any score over 50 corresponds with growth). It was the highest reading for the index in 25 months.
A sub-index tracking new orders rose to its highest level since February 2011.
Now let’s move onto construction: the latest PMI tracking UK construction in June, out on July 2, rose to 51, which is the highest reading since May 2012. The rate of new order growth accelerated since May and was the strongest for just over a year. Anecdotal evidence pointed to signs of an upturn in underlying client demand and stronger levels of new work in the house building sector.
Then there is the big one. In the UK, services remain the most important sector. The Business Activity Index recorded 56.9 in June, up from May’s 54.9 and the highest reading for 27 months. The index has been above the 50 no change mark for six months. Confidence regarding future activity was also retained, with expectations at their highest for 14 months.
So, put all that together and what do you get?
The all-sector PMI, measuring output across the private sector economy, rose for the fourth month running in June, up from 54.4 in May to 56.0, its highest since March 2011. According to Markit, the recent readings are roughly consistent with GDP growth accelerating from 0.3 per cent in the opening quarter of the year to 0.5 per cent in the three months to June.
Markit said: “Encouragingly, growth in the second quarter is looking more broad-based than earlier in the year… Even stronger growth is possible given the recent flow of upbeat official data. The upturn in business activity was fuelled by inflows of new business growing at the fastest rate since September 2007.”
“Firms took on more staff at the fastest rate since October 2007,” continued Markit. “The increase was concentrated on the services sector, where hiring was the strongest since August 2007. A more modest gain in construction was nevertheless the best recorded since September of last year, while the manufacturing workforce was more or less unchanged.”
Richard Driver, Caxton FX analyst, said: “This really is impressive stuff – the services sector has outstripped market expectations time and time again this year."
While Martin Beck, UK economist at Capital Economics, said: “It looks increasingly likely that GDP growth in Q2 will turn in a decent performance.”
But the PMIs were not the only bringers of good news. An index from the British Chamber of Commerce measuring service export deliveries rose to +36%, which was the highest level since the survey began in 1989.
The reasons for this surge are not entirely obvious.
Wages growth still lags way below inflation, and for some time economists have argued that the UK will only see sustainable growth once real wages rise. You could understand the recovery if the UK had suffered some creative destruction, leaving a very lean and efficient manufacturing and services sector. But this has not happened, and poor growth in UK productivity makes it all the more puzzling.
It may be too soon to start giving reasons for this apparent recovery or to say whether it will last, but for the time being at least, the news is good.
© Investment & Business News 2013