Monday, September 05, 2011
Gloomy August - when the surveys matched the weather
Posted by David Smith at 12:00 PM
Category: Thoughts and responses

Once the role of Markit, which produces the monthly purchasing managers' surveys, appeared to be to expose some odd looking official figures. Markit's surveys signalled a UK upturn long before the Office for National Statistics did.

Now the purchasing managers' surveys are pointing to weak growth - it suggests its manaufacturing, construction and service surveys point to stagnation in the third quarter - at a time when the trajectory of the official figures (together with level effects) suggests faster growth in Q3 than Q2.

We will see what happens - the third quarter has time to run. In the meantime, some detail from today's service sector purchasing managers' survey, which showed a sharp index fall from 55.4 to 51.1, the sharpest drop for 10 years.

Was it the riots, the markets or just underlying weakness? This is Markit's verdict:

"Augustís Markit/CIPS survey of UK service providers indicated a steep slowdown of activity growth, as an increasingly fragile economic environment undermined confidence and gains in new business. Activity rose to the least extent of 2011 so far, and confidence in the future was the weakest in a year. Increased caution amongst service providers and evidence of spare capacity led to another slight fall in employment.

"The headline index from the survey, the seasonally adjusted Business Activity Index, plunged 4.3 points in August to register 51.1, only modestly above the 50.0 no-change mark. The decline in the index was greater than those seen in the autumn of 2008 (following the collapse of Lehman Brothers) and was surpassed only by the foot-and-mouth related fall of April 2001.

"Moreover, the rate of growth implied by the index was the slowest since December 2010ís weather-related contraction, with respondents primarily blaming a weaker underlying trend in new business and general economic uncertainty. There were a few reports that the rioting and public disorder seen in some areas of the country in early August had adversely affected activity."