Yesterday was a disappointing day for the economy. The week had started so well, what with Purchasing Mangers Indices around the world surging it seemed as if manufacturing was booming. In the UK, for example the PMI index from CIPS/Markit hit its highest level since October 1994. What with the US expanding so fast in the final quarter (annualized growth stood at 5.7 per cent), it seemed the dark days of recession were fading into a distant memory.

But a dark cloud was on the horizon. There was a fear. The economic equivalent of Lord Voldermort, or Lord Sauron or maybe Peter Mandelson, was that the manufacturing boom was down to a one off. The fear that could not be named (largely because no one has invented a word to describe it) is that the economic recovery was simply down to customers re-stocking, after using up their inventory, and that therefore we were seeing a temporary boom.
The litmus test was services. If they also saw a sharp rise, then maybe we could conclude something important was going on and the economy really was emerging out of the dark days like, like Frodo from Mount Doom, or Mandelson from the European Commission. So what would the data say? 

Alas, services fell back. According to the latest CIPS/Markit survey, services fell back from 56.4 in December to just 54.5 in January. Okay, in fairness the January score was a real corker, and a score of 54.5 is still way above the critical 50 no change mark,  but even so, it was the worst reading since August last year. Vicky Redwood, senior economist at Capital Economics said “Overall, then, the economy is clearly struggling to maintain even the meagre expansion it saw at the end of last year.”

But the woe does not stop there. Bad news on US services came flying out from the Institute of Supply Management (ISM) like  a dark wizard on a broomstick. The ISM index rose slightly, but then again it rose from a level that disappointed last month.  The index hit 50.5.  Compare this  with the inventory boosted manufacturing index which reached 58.4.

As for the eurozone, well here the darkness is even deeper, for even the manufacturing led recovery faltered last month with the composite Purchasing Mangers Indices falling. Apparently, its January level was consistent with quarterly growth of just 0.4 per cent.

But the woes got even more serious, with news that the credit ratings agency Moody’s warned that the triple A credit ratings for the US could come under pressure unless either growth starts to improve or the government cuts back on borrowing.

And yet, fears over the solvency of the US do seem a tad silly. Its debts are dwarfed by Japanese debts. Unlike Japan and Europe it is not haunted by an ageing population. (On why the US doesn’t have the same demographic pressures as the rest of us see: The demographic punch) Finally, the US is enjoying remarkable rises in productivity.