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Momentum in economy, says South West Observatory
A growing body of evidence has been released in recent weeks which finally may point towards some growing momentum in the economy, says the South West Observatory (SWO).
As the cold spring thaws and early summer has brought some welcome sunshine, there are signs that the UK economy is, at last, also beginning to show signs of life.
In this data release the SWO highlights a number of data releases and surveys which, when considered in combination, paint a picture of growing confidence.
There are three different main components that form the measurement of Gross Domestic Product (GDP) and these are measured separately by the Office of National Statistics. The indices of Services, Production and Services are made available on a monthly basis.
The Purchasing Managers Index is always seen as an important source of survey data because it is, in essence, a 'leading indicator' - more timely than published data.
The Royal Institution of Chartered Surveyors (RICs) monthly survey of residential property agents is a useful indicator of the health of the housing market - which continues to be an important part of the economic confidence. It relates to the agents' sentiments and activity and is timelier than other housing data sources which tend to be based on completed transactions.
The Organisation of Economic Co-operation and Development's (OECD) composite of leading indicators has a good record for predicting changes in growth.
The services sector remains by far the largest part of the economy and therefore the index of services is always of keen interest to economists, providing insight into the strength of the economy.
The index of services increased by 1.6% in March 2013 compared with a year earlier. All of the components of the services industry increased in the most recent month compared with the same month a year ago. The largest contributions came from business services & finance, which contributed 0.4pp to total growth.
On a month-by-month basis there was some weakness, output increased by 0.2% between February 2013 and March 2013, following an increase of 0.9% between January 2013 and February 2013. Generally though, the services sector has experienced sustained growth since 2009 - albeit on a lower trajectory that pre-recessionary levels - and continues to contribute most to overall GDP growth.
Whilst the latest data relating to construction output showed that quarterly and annual growth remain negative, there were some encouraging signs on a month-by-month basis. Whilst construction output in March 2013 was 7.4% lower than the comparable month a year earlier, it is 12.1% higher than in February 2013. This has mostly been driven by a strong growth in new work (13.4%).
Whilst this data is non-seasonally adjusted i.e. some of the growth will encapsulate the move out of the Winter and into a period of more favourable weather conditions, there some positive signals.
Of course, given the significant difficulties that the construction sector has experienced over the past 4-5 years, then any growth is likely to appear slightly exaggerated. However, the data broadly corresponds to more anecdotal feedback from the industry where certain sub-sectors such as housing are reporting stronger activity.
Production output
The index of production showed that between March 2013 and April 2013 output rose by 0.1%. Manufacturing fell by 0.2% over the same period following two consecutive increases during February and March 2013. Over the quarter (Q1 2013) production growth of 0.2% was largely in line with overall GDP growth of 0.3% (after the second preliminary estimate).
Purchasing Managers Index
It followed encouraging UK PMI manufacturing (rising from 51.3 in May from 50.2 in the previous month) and construction (rising from 50.8 in May from 49.4 the month before). A figure above 50 indicates expansion.
On a similar vein, the regional PMI report for the South West for May also shows encouraging signs. Business activity in the South West private sector economy increased for the second successive month in May (53.4 in May, up from 51.0 in April). Furthermore, the rate of expansion was the quickest in 12 months.
New business also rose at a marked pace, and for the second month in a row. Increased client demand led to the fastest expansion of payroll numbers since March 2011 (52.0 in May, up from 50.1 in April).
The latest PMI survey data showed some very positive signals for the services sector. It grew at its fastest rate since March 2012. The Markit/CIPS Services Purchasing Managers' Index (PMI) for the UK rose to 54.9 in May from 52.9 in April.
RICS Housing Survey
The latest RICs monthly survey for May indicates that British house prices at their fastest pace for nearly three years. The Royal Institution of Chartered Surveyors said that its seasonally adjusted house price balance for May came in at +5, meaning that slightly more of its members reported price rises rather than price falls in the preceding three months.
That was the strongest reading since June 2010, which also recorded +5. RICS stated that new buyer enquiries were reaching 2009 levels, as measures such as the Bank of England's Funding for Lending Scheme and the government's Help to Buy policy, aimed at loosening credit conditions, began to flow through the market.
RICS said its members sold 17.9 homes on average in the three months ending in May. While still low compared with the 2007 peak, it was the highest reading since January 2010.
The SWO says: "We have highlighted a number of data releases and survey findings which present a more positive picture of economic growth in the UK. There is growing consensus that Q2 2013 will see more positive quarterly GDP growth and the hope that this will be sustained into the summer and beyond."
In this data release the SWO highlights a number of data releases and surveys which, when considered in combination, paint a picture of growing confidence.
There are three different main components that form the measurement of Gross Domestic Product (GDP) and these are measured separately by the Office of National Statistics. The indices of Services, Production and Services are made available on a monthly basis.
The Purchasing Managers Index is always seen as an important source of survey data because it is, in essence, a 'leading indicator' - more timely than published data.
The Royal Institution of Chartered Surveyors (RICs) monthly survey of residential property agents is a useful indicator of the health of the housing market - which continues to be an important part of the economic confidence. It relates to the agents' sentiments and activity and is timelier than other housing data sources which tend to be based on completed transactions.
The Organisation of Economic Co-operation and Development's (OECD) composite of leading indicators has a good record for predicting changes in growth.
The services sector remains by far the largest part of the economy and therefore the index of services is always of keen interest to economists, providing insight into the strength of the economy.
The index of services increased by 1.6% in March 2013 compared with a year earlier. All of the components of the services industry increased in the most recent month compared with the same month a year ago. The largest contributions came from business services & finance, which contributed 0.4pp to total growth.
On a month-by-month basis there was some weakness, output increased by 0.2% between February 2013 and March 2013, following an increase of 0.9% between January 2013 and February 2013. Generally though, the services sector has experienced sustained growth since 2009 - albeit on a lower trajectory that pre-recessionary levels - and continues to contribute most to overall GDP growth.
Whilst the latest data relating to construction output showed that quarterly and annual growth remain negative, there were some encouraging signs on a month-by-month basis. Whilst construction output in March 2013 was 7.4% lower than the comparable month a year earlier, it is 12.1% higher than in February 2013. This has mostly been driven by a strong growth in new work (13.4%).
Whilst this data is non-seasonally adjusted i.e. some of the growth will encapsulate the move out of the Winter and into a period of more favourable weather conditions, there some positive signals.
Of course, given the significant difficulties that the construction sector has experienced over the past 4-5 years, then any growth is likely to appear slightly exaggerated. However, the data broadly corresponds to more anecdotal feedback from the industry where certain sub-sectors such as housing are reporting stronger activity.
Production output
The index of production showed that between March 2013 and April 2013 output rose by 0.1%. Manufacturing fell by 0.2% over the same period following two consecutive increases during February and March 2013. Over the quarter (Q1 2013) production growth of 0.2% was largely in line with overall GDP growth of 0.3% (after the second preliminary estimate).
Purchasing Managers Index
It followed encouraging UK PMI manufacturing (rising from 51.3 in May from 50.2 in the previous month) and construction (rising from 50.8 in May from 49.4 the month before). A figure above 50 indicates expansion.
On a similar vein, the regional PMI report for the South West for May also shows encouraging signs. Business activity in the South West private sector economy increased for the second successive month in May (53.4 in May, up from 51.0 in April). Furthermore, the rate of expansion was the quickest in 12 months.
New business also rose at a marked pace, and for the second month in a row. Increased client demand led to the fastest expansion of payroll numbers since March 2011 (52.0 in May, up from 50.1 in April).
The latest PMI survey data showed some very positive signals for the services sector. It grew at its fastest rate since March 2012. The Markit/CIPS Services Purchasing Managers' Index (PMI) for the UK rose to 54.9 in May from 52.9 in April.
RICS Housing Survey
The latest RICs monthly survey for May indicates that British house prices at their fastest pace for nearly three years. The Royal Institution of Chartered Surveyors said that its seasonally adjusted house price balance for May came in at +5, meaning that slightly more of its members reported price rises rather than price falls in the preceding three months.
That was the strongest reading since June 2010, which also recorded +5. RICS stated that new buyer enquiries were reaching 2009 levels, as measures such as the Bank of England's Funding for Lending Scheme and the government's Help to Buy policy, aimed at loosening credit conditions, began to flow through the market.
RICS said its members sold 17.9 homes on average in the three months ending in May. While still low compared with the 2007 peak, it was the highest reading since January 2010.
The SWO says: "We have highlighted a number of data releases and survey findings which present a more positive picture of economic growth in the UK. There is growing consensus that Q2 2013 will see more positive quarterly GDP growth and the hope that this will be sustained into the summer and beyond."
