Humpty Dumpty economics

'When I use a word,' Humpty Dumpty said, in rather a scornful tone, 'it means just what I choose it to mean — neither more nor less.' (Lewis Carroll, "Through the looking glass")

The press's favoured description of the performance of the UK economy in the final quarter of 2010 and the first quarter of this year is either "flatlining" or "dead in the water", even though it's likely that output only declined in one of those six months, December, and even that was entirely attributable to adverse weather. (See my post of 27 April on the Q1 GDP data for more details).

The same stretching of the dictionary is already under way as we start to see the first snippets of data for the current quarter, specifically the Markit/CIPS PMI (purchasing managers' index) series. There are three of these, relating to services, manufacturing and construction. Here's how the various PMIs were reported this week in The Times:

"....data out yesterday showed that construction activity slowed sharply last month, with the Markit/CIPS construction index falling to 53.3, from 56.4 in March.".

"Activity in Britain’s dominant services sector suffered a sharp slowdown in April as government spending cuts began to bite.

According to the closely watched CIPS/Markit Services Index yesterday, activity in the sector, which accounts for three quarters of the economy, fell to 54.3 last month, from 57.1 in March".

"Britain’s manufacturing sector last month grew at its slowest pace since September, fuelling fears that the economy will continue to suffer muted growth.

The Markit/CIPS manufacturing index fell to 54.6 in April, from 56.7 the previous month".

Feeling gloomy yet? That seems to be the desired effect. But the fact is that every one of these indices is above the breakeven level of 50, so all three sectors actually continued to grow in April, albeit a bit more slowly. To be fair to The Times, the reporter goes on to note that not insignificant fact, but only after front-loading the doom and gloom.

Mind you, Markit themselves did little to help the cause of accurate reporting. Their press release for the services PMI, which also served as a summary appraisal of all three series, was headlined "PMI surveys point to sharp growth slowdown in April". In case you missed the point, the first subheading was "Largest fall in all-sector PMI Output Index since collapse of Lehmans signals GDP growth of just 0.4% at start of Q2".

Any Lehman reference is bound to lure in the reporters, right? But hang on! If memory serves, GDP growth in Q1 was 0.5%. So the "sharp growth slowdown" is from 0.5% to. ....0.4%? That's right. Interestingly, Markit thinks that in March the economy may have been growing at about 0.8% on a quarterly basis (an annual rate of well over 3%!), which provides at least some justification for the term "sharp slowdown". However, that point doesn't seem to have made it into any of the media coverage, either because (a) it would have contradicted the established wisdom that the economy was "flatlining" in Q1 or (b) nobody bothered reading past the first paragraph of the Markit release. (Markit also suggested that construction would boost overall GDP in Q2. Try finding that in the press reports!)

Sadly, deconstructing the business press like this is easier than shooting fish in a barrel. I used to get paid good money for doing it. Now I do it out of the goodness of my heart, but I still wish it wasn't necessary.