By George Kerevan
NEWS that private service sector activity in the UK has shrunk for the first time in two years is not the best way to start 2013.
The main Markit Purchasing Managers’ Index (PMI) fell into negative territory in December. In other words, more service sector managers were reporting a fall in business than an expansion. Add in poor construction figures and it looks likely that UK output in the fourth quarter might have been negative, down perhaps 0.2 points.
But is this just a blip? With public austerity and our main European market in the doldrums, there is nothing driving UK growth at the moment. So we can expect output to bump up and down as a result of purely episodic factors. Besides, on the positive side, UK manufacturing activity hit a 15-month high in December. However, the trend in service activity – which accounts for around three-quarters of GDP – is worrying. The PMI index registered a boost in service sector activity in August 2012, as the whole UK economy came out of recession. But in September service growth started decelerating, stalled in October and fell in November. Now we have a second month of contraction, with the PMI index at its lowest level since the 2009 when the UK recession was deepest. Service employment is also down.
Why are services performing badly? And is it one element or the whole kit and caboodle? ONS data for Q3 gives a breakdown in three service sectors: distribution, hotels and catering; transport and communications; and finance and business services. The first performed a bit better than the others, but there is no indication any one sector was uniquely in trouble. So it’s a general problem.
My guess is that uncertainties regarding the global and UK economies throughout the latter half of 2012 have stalled business investment spending, and this is now working itself out as a contraction in orders across all business-to-business service markets. If so, we could be looking at triple-dip recession in 2013. That puts even more pressure on George Osborne to come up with something effective in his March Budget.
More than just jobs numbers to worry US
US non-farm employment rose by 155,000 in December – roughly as expected. Most of the increase came in health care and food services, leaving manufacturing employment still languishing. The unemployment rate remains at a high 7.8 per cent. Joblessness among black Americans and adult women actually went up. Scorecard: the US labour market is still marking time but these neutral numbers should not spook the markets.
More worrying is an indication in the latest Federal Reserve minutes that some voices in America’s central bank are having second thoughts about the open-ended printing of money to bring down unemployment to 6.5 per cent (an arbitrary line). Add in the still-unresolved US budget crisis and there is the makings of a share sell-off.
Swiss pushing up the pound to save the franc
HAS anyone noticed the UK is in a currency war? New IMF data shows that in Q3 last year foreign central bank holdings of sterling jumped by £12 billion, the largest three-monthly increase on record. Much of this was down to the Swiss central bank selling Swiss francs and buying sterling, to keep its exchange rate down. Result: upward pressure on sterling and trouble for UK exporters. Beware of Swiss currency cuckoos.
Courtesy of George Kerevan and the Scotsman newspaper