So, last week’s sharp rise in the Purchasing Managers’ Index (PMI) for manufacturing wasn’t a freak. This morning its twin, the PMI for the much larger services sector, also showed a huge rebound to 52.9, more than reversing the fall to 47.4 in July and putting it marginally ahead of PMI for the Eurozone, which stands at 52.8. The combined PMI was 53.2 in August. Anything above 50 suggests that the economy in expanding while anything below 50 suggests contraction.
Just like last week’s manufacturing figure, this morning’s news seems to have caught forecasters unaware: the consensus was for PMI in services to be 50.0. It is a reminder of just how useful the art of economic forecasting is, yet in the absence of anything better, many still take it rather too seriously. Nicola Horlick told the Today programme this morning that the economists who continue to predict post-Brexit doom ‘can’t all be wrong’. It was left to Tim Martin, chairman of Wetherspoons, to point out that these people had already been wrong because the doom they predicted was to begin in the immediate aftermath of the Brexit vote – and that clearly has not happened.
But it isn’t just economic forecasters who have made, well, a complete Horlicks of it. There is now a huge and growing gulf between what some world leaders are saying at the G20 in China and what is happening in the real economy. Yesterday, the Japanese government issued its warning to Britain over Brexit, while Obama repeated his assertion that voting to leave the EU is a big mistake. Both might have done better to observe what is happening in the real economy before spouting off.
It makes you wonder what the G20 is actually for. Isn’t one of its main objectives to build confidence in the global economy? Instead, this meeting seems to be trying to achieve the exact opposite: to counter strong signs of a rebounding UK economy. Once we have left the EU, the G20 is another international institution membership of which we should review.
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