It was just over a week ago that we learnt that the preliminary estimate for the UK economy in the third quarter of 2012 was for 1% economic growth. However along the lines of the famous quote from Star Trek “It’s growth (life) Jim but not as we know it” we were left with the question of how much underlying growth there was as half of the growth was likely to be a rebound from the previous quarter mostly due to the extra bank holiday. Also even with that quarterly performance we had flatlined over the previous year as over that period we had seen no economic growth at all. Even worse according to the National Institute for Economic and Social Research we remain in this position.
Over the past two years GDP has been broadly flat, and the economy is still around 3.3 per cent below its pre-recession peak in January 2008
So we should be growing in the fourth quarter to make up that gap and because we hopefully have some momentum. Let us examine the evidence that we have so far.
Purchasing Manager’s Indices
These give us the earliest and most timely estimate that we receive about the state of the UK economy. We receive them in the order of manufacturing,construction and services and here is our most recent set.
The UK manufacturing sector saw overall operating conditions deteriorate for the sixth successive month in October. Companies continued to face a combination of declining export sales, weaker domestic demand and rising cost pressures.
October data highlighted another difficult month for the UK construction sector, with the latest survey showing a subdued trend in output levels alongside moderate reductions in new work and employment.
Further growth of UK services activity was recorded during October, although the rate of expansion slowed to a marginal pace. Growth of new business also eased during the month, leading companies to deplete backlogs of work. Meanwhile, staffing levels were reduced for the second month running………Moreover, the rate of growth was the slowest in the current 22-month period of rising activity.
So if we start with our largest sector which is services we see that growth is now very marginal with the reading having fallen to 50.9 in October from September’s 52.2 and we see that this is the slowest rate of growth for nearly two years. That looks ominous to me when we consider that overall our economy has barely grown over that period so we are weak compared to a previously poor performance. Construction at least has managed some growth in what has been a dreadful run for it but 50.9 is very weak growth. Finally we see that manufacturing has dropped from 48.5 in September to 47.5 in October. If we stretch our minds back to then the 48.5 number was presented as a “shock”.
Europe is not helping much either
The UK’s ability to export to its nearest neighbours will not be helped much by the latest news from the Euro area.
The downturn in the Euro zone economy deepened at the start of Q4 2012, with the combined output of the manufacturing and service sectors falling at the fastest pace since June 2009. The Markit Euro zone PMI Composite Output Index fell to 45.7 in October, down from 46.1 in September and the earlier flash estimate of 45.8.
I guess we could look West to Ireland my subject of yesterday as she produced a stellar reading of 55.5.
The past may not have been as good as we thought either
This morning has seen the release of our industrial and manufacturing numbers for September and they were not good.
The seasonally adjusted Index of Production fell by 2.6 per cent in September 2012 compared with September 2011
The seasonally adjusted Index of Manufacturing fell by 1.0 per cent in September 2012 compared with September 2011
The dreadful industrial production numbers which were also down by 1.7% on a monthly basis were driven by this.
The biggest contributor to the decrease was from the extraction of oil & gas, which fell by 20.2 per cent
So many already are hoping it is a blip due to maintenance,although I have concerns that our oil production seems to be developing a trend which is not good. Also those pursuing the view that this is a blip need to address the fact below about UK industrial production.
This is the 18th consecutive monthly fall on the same month a year ago.
If we look at the underlying index we see that UK industrial production was at 113.1 in 2007 before the credit crunch hit on a scale where 2009=100 and in September it was 94.8. Manufacturing output is more hopeful as on the same basis it was 104.8 in September.
The UK housing market remains weak
Today we have seen this from the Halifax
House prices in the three months to October were 1.2% lower than in the preceding three months. This was the fifth
successive decline in this measure of the underlying trend and compared with a 0.5% fall in September……
Prices in the three months to October were 1.7% lower than in the same period a year earlier. This is very similar to the annual rate recorded a year ago: -1.8% in October 2011.
House prices decreased by 0.7% in October
So house prices are drifting lower according to them and we may be seeing signs of a little bit of an acceleration. The Halifax tries to give the numbers a little bit of spin by pointing out that mortgage approvals are rising but as you can see from the quote below that is not as good as it may seem.
Approvals increased by 4% to 50,000 in September, but were still 2% lower than in September 2011
So there is no clear signal of a recovery for our housing market from those numbers. Indeed there are worries for the fourth quarter from them although in the longer-term I have to confess I do not see that as being all bad as I still feel that overall UK house prices need to fall to enable a proper recovery rather than a zombie one.
Also one has to acknowledge that as ever seems to be the case the picture is confused as the Nationwide agrees that prices have edged lower over the past year but tells us this for October.
UK house prices increased by 0.6% in October, more than offsetting the 0.4% decline recorded the previous month
UK Retail Sales
Overnight the British Retail Consortium has informed us of this.
UK retail sales values were down 0.1% on a like-for-like basis from October 2011, when they were down 0.6% on the preceding year. On a total basis, sales were up 1.1%, against a 1.5% rise in October 2011.
Excluding Easter, this was the lowest growth in total sales since November 2011. The slowdown from
last month was felt across all categories, including online sales.
So not inspiring and their economist added this to it.
Year-to-date average growth hasn’t outpaced inflation meaning overall sales volumes going backwards
Mind you they could not resist a little bit of spin.
This underwhelming showing means there’s all to play for as Christmas approaches
I would like to see a football manager try that one!
The other side of the coin
Not everything is downbeat as the UK’s car sales numbers do look more optimistic. From the SMMT.
The new car market has increased 5.0% over the year-to-date, growing in all but one month, totalling 1,771,861 units. This represents an increase of 83,823 units on a year ago.
Unfortunately unlike my review of the Irish economy of yesterday the news here is mostly disappointing. We still have much of the fourth quarter to go but it looks as though the first month of it (October) showed little if any economic growth. The heady days of 1% economic growth in a quarter -a number which may be under challenge now- look likely to be an actual blip rather than any new surge. It looks as though our economy continues to grind forwards slowly with some growth but not very much. This far into a contraction this is both unusual and a disappointment.
This Thursdays vote at the Bank of England about more Quantitative Easing could be much tighter than many have assumed.
Travelling in a land down under
Whilst I refrain from entering the political debate I do from time to time comment on our political class. I am curious as to the terms of the contract of our Members of Parliament as one has time to go to Australia and enter I’m a Celebrity Get Me Out of Here whilst Parliament is sitting. What about representing your constituents?
Anyway let me give you my views by quoting Men at Work for a second time.
It’s a mistake, it’s a mistake
It’s a mistake, it’s a mistake