Summer soft patch significant? – from RBS Chief Economist’s Weekly Brief

Here are a some of the stats that leapt out at me. The full report is here.

Italics are mine.

Weak signal. The soft patch for British business continues, according to the latest Purchasing Manager’s Index, with activity remaining subdued in each of the UK’s three main sectors in May. Manufacturing output, at 50.1, just about scraped above the 50-mark that separates expansion from contraction. But orders are weak and come mainly from domestic demand. Meanwhile output in construction is the weakest in three years, although true to form construction firms remain optimistic. Lastly, activity in the dominant service sector, at 53.5, remains below its long run average of 55.2.

Re-writing history. Once a year the Office for National Statistics makes new estimates for GDP growth over the past few decades. These revisions are normally small but sometimes they are meaningful. Take the first two years of this recovery. The original data showed that 2010 was a year of fairly slow growth (1.5%) before the recovery speeded up to a sprightlier 2% in 2011. But the revised statistics have now reversed that, with 2010 being the year of 2% growth before a slowdown in 2011. What hasn’t changed is the fact that this is one of the slowest recoveries the UK has ever experienced.

Comeback kids. Ireland and Spain were amongst the economies hit hardest by the Euro crisis, but their growth is now the envy of the rest. Business confidence, as measured by the PMI, is highest in Ireland (59.1) with Spain in second place on 54.8. But current concerns are concentrated on two big economies that aren’t doing very well. France and Italy are hovering close to the stagnation point of 50. That’s unfortunate for France, but at least the GDP of the Euro 2016 hosts is 3% above its pre-crisis peak. But it is disastrous for Italy whose economy is still 7% smaller than it was in 2008.

More of the same? Surveys suggest the US growth slowdown might be more than a passing phase. The Institute for Supply Management’s service sector index slipped from 55.7 in April to 52.9. That was the lowest level since February 2014. Especially notable was the fall from 59.9 to 54.2 in the new orders gauge. The manufacturing report was more encouraging. It rose by 0.5 points but a reading of 51.3 hardly signalled runaway growth.

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