Wednesday, October 03, 2012
Soggy September
Posted by David Smith at 12:00 PM
Category: Thoughts and responses

Just as the GDP figures gave an artificial impression of weakness in the economy in the second quarter, so the third quarter numbers risk giving an artifical impression of strength. The service sector purchasing managers' index for September showed a fall from 53.7 to 52.2, below market expectations of 53.

There was good and bad news in the survey. The employment component dropped below 50, suggesting a drop in jobs, but new work rose at its strongest rate since May. The headline on the release by Markit, which prepares the data, is: "Faster rise in new business supports solid increase in activity during September."

So we should not be too gloomy. But the average level of the three purchasing managers indexes for the third quarter, 51.1, is according to Markit consistent with only 0.1% growth. It is the unwinding of the Jubilee effect, perhaps contributing 0.4% or 0.5%, which will provide a healthier picture.

The big picture, as it has been over the past three years, is of an economy growing modestly, at something like a 1% rate. There is nothing in these surveys to suggest a breakout from that.