We have two interesting sets of British economics statistics today. The first is about industrial production--evidence that this fancy high-falutin' stuff about markets and prices does actually work. And we have another indicator, more about perceptions than a guide to actual activity, which expects that this will continue throughout the autumn. Or, as we might put it, that immediate recession following on from the Brexit vote sure looks like it's a long time a'comin'.
The first indicator is the Markit PMI for industrial production. It's entirely true that this isn't all that important an indicator for the UK economy. Manufacturing is some 10-12% of the economy and industrial production is only a shade larger than that. However, they are the sector which is most affected by exchange rates and thus give us a good idea of how the economy is reacting to a change in that exchange rate:
Manufacturing activity grew at its fastest pace since 2014 last month, outstripping City of London analysts’ expectations and adding to the impression that the sector has recovered from a severe initial post-Brexit vote hit.
The latest Markit/CIPS Purchasing Managers’ Index reading jumped to 55.4 in September, up from 53.3 in August, with any figure above 50 showing expansion.
Do note how this works. They go and ask purchasing managers, the people who buy the stuff that companies will then make stuff from, whether they think they're going to be buying more or less stuff to be making stuff from. This thus gives us a good indication of what production is likely to be say a month or 6 weeks down the road. It does, after all, take time to transform bits into products but in these days of Just In Time deliveries and the like not all that much time. So, we've got an interesting indicator of near term changes in production:
British factory activity grew at the fastest rate in more than two years last month, boosted by a surge in export orders after sterling slumped following June's referendum vote to leave the European Union, a survey showed on Monday.
So, we decide to leave the EU. Sterling falls in value. Johnny Foreigner finds out that things made in Britain are now cheaper so J. Foreigner decides to buy more of these now cheaper things. My word, looks as if these markets and demand curves things work, doesn't it?
We also have a slightly different survey from the CBI. This is a bit more general and also a little smaller. But it gives us an insight into a slightly longer time period, not the immediate future but a few months ahead:
Firms believe there will be a "surge" in economic activity in the coming months, despite only recording slight growth in the last quarter, a report shows.
A survey of almost 800 private companies by the CBI revealed a fall in business in services, but healthy growth in manufacturing and distribution.
All sectors expect strong growth in the next three months, the study found.
As I say, it's a survey and it doesn't have quite the rigour of the PMI one. But it's still a useful indication of the near future:
The Confederation of British Industry said on Sunday its growth indicator, based on a poll of companies, fell to +3 in the third quarter of 2016, down from +8 in the three months to August and the lowest since March.
The measure showed manufacturing output grew as the fall in the value of sterling after the Brexit vote helped exporters. But retailers and consumer services were broadly flat and business and professional services fell slightly.
By contrast, expectations for the next three months jumped to +22, the highest level since September 2015 with growth expected across all sectors.
There most certainly was an outburst of that famous uncertainty as the results of the Brexit vote became known. Given the blood-curdling warnings we were all given before it that's not really all that much of a surprise. But we seem to have mastered that--the uncertainty, by that PMI figure and backed up by this CBI one appeared to last as long as it took to measure it and very little more--and the economy is reacting well to the exchange rate fall which is the cure for said uncertainty.
Of course, we can always start telling the stories of the bloke falling 99 floors and claiming while passing floor 10 on the way down that it all seems just fine so far. But it really is true that we just don't seem to be seeing any ill effects from having decided to rule ourselves for a change. Someone should really have a chat with George Osborne about this.
