UK services PMI doesn’t bode well for UK unemployment or the CPI
After monday’s poor manufacturing PMI report, today it’s the turn of the service sector. Whilst the headline number is being spun with the usual rose-tinted spectacles, a little digging into the actual report shows some very worrying signs for UK unemployment and the CPI
From the Markit/CIPS PMI report:
UK service sector activity continued to rise in September, in line with a solid gain in new business. Anecdotal evidence suggested an underlying improvement in demand and a post- Olympics boost to business activity…
…After accounting for seasonal factors, the headline Business Activity Index recorded 52.2 in September. That was down from August’s 53.7, but still above the 50.0 no-change mark for the twenty- first successive month.
So now being down is being spun as good? But wait until you see the reason that “companies have kept on top of workloads” helping get that 50+ print:
Growth rates remained below trend, however, and companies were able to largely keep on top of workloads with fewer staff. A net fall in employment was recorded for the first time in ten months.
So less people are doing more work, what an economic recovery. Also note that UK economy has been contracting for about 9 months and during that whole time there was a net rise in employment. Now that the UK is supposedly discovering green shoots again (thank-you Jonh Major) we start seeing net lay-offs in the service sector.
(click for sharper image)
The report goes on:
Companies adopted a cautious attitude when it came to employment decisions, generally choosing not to replace leavers. Subsequently, payroll numbers were down modestly – the first contraction since last November. There were some reports that staffing levels were naturally cut as companies sought to keep control of overheads and persist with restructuring programmes.
And why might companies be choosing not to replace leavers? You guessed it, rising prices:
Operating expenses continued to rise in September, with the rate of inflation little changed at a marked pace. A number of companies continued to blame higher fuel and energy costs, while some commented on an increase in food prices. Given the sources of inflation, companies in the Hotels, Restaurants & Catering sector recorded the steepest input price rises.
And why haven’t the public at large really felt these prices rises yet? You guessed it right again, margin compression. Companies are choosing (for now) not pass through the cost increases to customers. But that is coming:
Despite facing another round of marked input cost rises, UK service providers recorded little change in their output charges during September following marginal inflation in August. Market pressures continued to weigh on pricing power, with competition reportedly fierce and the underlying business climate still fragile.
Overall this report whilst on the surface will no doubt be spun as positive, the real takeaway is that unemployment is more likely than not to tick up in the coming months and the CPI will be back heading towards 3% as soon as those companies can’t cut costs any closer to the bone.
Related posts:
- UK unemployment now higher than at anytime during the recession – youth unemployment highest since records began
- UK unemployment rises 80,000 – quantitative easing / money printing all but guaranteed
- UK unemployment now higher than at any time during the recession
- Unsurprisingly UK unemployment data is horrible – how far off is BoE stimulus?
- UK Services PMI: 54.5
Link to this article: : http://www.goldmadesimplenews.com/analysis/uk-services-pmi-doesnt-bode-well-for-uk-unemployment-or-the-cpi-8238/
Posted by Thomas Paterson on Oct 3 2012. Filed under Analysis.
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