PMI Rises to 55.1

UPDATE: British factory activity has increased for nine consecutive months. The IHS Markit/CIPS UK manufacturing PMI rose to 55.1 in February - well above the 50.0 threshold denoting growth. #UKmfg🇬🇧

— Jefferson (@Jefferson_MFG) March 1, 2021

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UK April Manufacturing PMI Beats Forecasts

*U.K. APRIL MANUFACTURING PMI RISES TO 57.3; FORECAST 54

— World First (@World_First) May 2, 2017

Brexit Armageddon Has Not Occurred

Services PMI Strong, Biggest Jump on Record Ever https://t.co/5Q4iHhV2Dq #DespiteBrexit pic.twitter.com/ULidKiWMOv

— Euro Guido (@EuroGuido) September 5, 2016

China Recovers

The Chinese economy appears to be recovering.

As per Positions and Promotions, the official PMI, which samples 3,000 nationwide enterprises of various sizes, reached its highest level in more than two years at 51.7, up from 51 in June. The fifth consecutive month of recovery, was stronger than the market consensus forecast of 51.4.

The HSBC PMI, which samples 420 small and medium enterprises, showed similarly positive results reaching 51.7 for July. It indicates the strongest rate of improvement for China's manufacturing sector in a year and a half.

UK Grows Whilst Eurozone Stagnates

According to a survey of 350 manufacturers carried out by the CBI, Britain's manufacturing sector is growing at its fastest rate for nearly two decades. The Telegraph reports that total order books relative to normal levels were at their strongest since March 1995.

The CBI survey's total order book balance rose to +11 this month to from -4 in October, well above expectations of 0 and the long-run average of -17. 

Meanwhile in the Eurozone things are somewhat different. Markit Economics said that its Eurozone Composite Purchasing Managers Index (PMI) for November (published today) fell to a three-month low of 51.5 points from 51.9 points in October.

France, the Eurozone's second largest economy, is dragging the zone down whilst the other smaller economies are all but stagnant.

Such is the effect of using one economic policy (via the single currency) for multiple economies that face different problems.

UK Economy Heads Towards Escape Velocity

Following last week's jump in the UK's construction PMI, there is further good economic news.

The UK services sector grew at its fastest pace in more than six years in July. The Markit/CIPS services purchasing managers' index (PMI) rose to 60.2 in July from 56.9 in June, its highest level since December 2006. This is a larger gain than forecast by any of the economists polled by Reuters.

Paul Smith, senior economist at Markit is quoted by Reuters:

"Although an early call on one month's data, the forward-looking elements from the survey point to a further strengthening of GDP in Q3 as the UK heads towards 'escape velocity' and self-sustaining economic expansion."

The PMI survey showed a continued increase in services employment. However, the increase in demand is also causing firms to increase prices; ie people's incomes will remain "under pressure".

UK Construction Jumps

UK construction activity rose in July to its highest level since June 2010.

Reuters reports that the Markit/CIPS construction PMI rose to 57.0 July, up from 51.0 in June. The rise is mainly on the back of an increase in residential construction which has spurred an increase in confidence of purchasing managers.

Whilst the increase in residential construction is hardly surprising, given the increased stimuli to the sector offered by the Chancellor, the size of the increase in PMI is above expectations and as such is very welcome.

Tim Moore, senior economist at Markit said:

"July's survey highlights a new wave of optimism across the UK construction sector, with companies reporting a pace of expansion in excess of anything seen over the past three years."

Like it or not, the UK economy's bedrock is the property sector; by stimulating that sector the Chancellor has in effect stimulated the economy.

The question is, will this stimulation create an inflationary asset bubble?

Stagnation Abounds

The purchasing managers indexes (PMIs), released today make depressing reading.

Reuters reports that the composite Eurozone PMI fell to 45.9 in September, from 46.3 in August. A level of less than 50 denotes contraction.

The ongoing decline in PMI indicates that the ECB "plan" to buy Eurozone debt has not impressed companies, or restored their faith in an upturn.

It is not just Europe that is suffering, the ongoing recession in Europe has negatively impacted China (seen by many as the last best hope for pump priming a global economic recovery). Although the China manufacturing PMI rose in September to 47.8 from August's nine-month low of 47.6, it remains below 50 which indicates that Chinese growth is slowing/stalling.

In theory China and the Eurozone should work together to try to address their mutual problems. Unfortunately, China is less than pleased that there is still an arms embargo and that its products are subject to tariffs.

Growth Detected

Financial "experts" have been pleasantly surprised by the Purchasing Managers Index (PMI), which shows that the UK manufacturing sector experienced an accelerated pace of growth from a level of 53.52 in September to 54.93 in October.

To add to the positive news, the PMI survey also showed that the "sub-index" of jobs rose from 48.97 to 54.97 during the same period; ie employment in the manufacturing sector has increased.

However, before the champagne is cracked open, several caveats need to be made:

1 The UK is hauling itself out of a deep and prolonged recession, it is not unexpected that initial figures will show a strong bounce back (as they are coming from a low level).

2 The government's plans for reducing the public sector debt (ie government cuts) may well dampen down future growth prospect.

3 The better than expected figures may, perversely, negatively impact the economy by putting the "brakes on" plans by the Bank of England for further quantitative easing.

Time will tell as to whether these figures are merely a "dead cat bounce".

No More Boom and Bust?

Those of you with long memories may recall some years ago the then Chancellor, Gordon Brown, boasting in parliament that there would be "no return to boom and bust".

However, politicians' promises are as fleeting as the early morning dew. Following on the from the worst recession in decades, the CIPS/Markit manufacturing purchasing managers' index (PMI) rose to 57.2 in March (from 56.5 in February). This is the highest level since October 1994.

Additionally, the Post Office is set to offer "super sized" mortgages to people with only a 10% deposit; thus hoping to end the loan drought that has held back the housing market.

However, those of you who fear a boom should take comfort in the fact that the TUC has promised months of industrial unrest. This will guarantee that any boom will be short lived, as the "brothers" seek to push the economy back into the economic doldrums.

In retrospect maybe Brown was right, there will be no return to boom and bust; we seem to be condemned to live in a permanent state of "bust".