Bill Jamieson: A recovery stronger than we think

Figures last week showed business confidence in Scotland has risen to a record high. Picture: Toby William
Figures last week showed business confidence in Scotland has risen to a record high. Picture: Toby William
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AMID indications of the beginnings of economic recovery Bill Jamieson tells us to ignore the doubters and the good news will keep coming.

Today the recovery is still being downplayed. It is belittled as a consumer recovery only, and one “fuelled by more household debt”. It can’t be trusted. It has no substance. It cannot last.

I beg to differ. We are seeing a recovery of unquestionable breadth and depth. Indeed, in more than 40 years of business reporting I cannot recall a period when the good news has kept on coming in such volume and the change in business confidence has been so evident.

It has certainly been a long wait. But just as we have overplayed the effects of government “austerity”, we are now underplaying the breadth of upturn – in employment, business activity, confidence and orders – both north and south of the Border.

Figures last week showed business confidence in Scotland has risen to a record high and stands above the UK average. The latest monitor from the accountancy body ICAEW shows that the confidence of Scottish firms in the current quarter has grown to plus 38 – up almost 10 points from the final quarter of last year.

This follows recent labour market figures showing that Scotland enjoyed the largest annual increase in employment in almost seven years – with 92,000 new jobs over the year to October-December 2013.

This recovery is continuing to gain momentum and I expect data from the Federation of Small Businesses Scotland and employment data from the Bank of Scotland out this week will strongly underline that this upturn is not only being sustained but is strengthening.

All very well, say the sceptics, but it’s only a high-street spending recovery – it has no substance. And in any event, the consumer spending upturn is once again debt-fuelled.

So what’s happening outside the high street? In manufacturing, the latest picture from the purchasing managers survey shows that, notwithstanding weather-related slippage, manufacturing activity performed well in the first quarter of 2014 and is on course for further healthy growth. The manufacturing PMI index rose to 56.9 in February and averaged 56.7 in the first two months of 201 – both figures substantially above its lifetime (1992-2014) average of 51.4. Output remained at an elevated level in February while new orders held up well.

A similar upbeat picture has emerged in construction. The PMI survey points to the sector sustaining very strong activity in February, although there was some hit to house building and commercial activity coming from the very wet weather and flooding. Construction activity was still reported to be at one of its highest levels since 2007, with incoming new business at elevated levels despite wet-weather disruption. The survey indicated widespread strength in activity and orders, with already strong civil engineering work rising to a survey record high (it started in 1997).

Extended improved economic activity and increased business confidence seem to be increasingly supporting a pick-up in commercial construction activity. There are also reports that infrastructure projects are increasingly kicking in.

Ironically, it is growth in service sector activity that has edged back notably in recent months after a powerful growth surge last year – the October survey registered a 16-year high. But the PMI survey here indicates that it seems well set for further robust expansion in the first quarter of 2014.

Global Insight economist Howard Archer said: “The recent sustained improvement in economic activity and strengthened confidence in the outlook is supporting demand across a wide range of business services, such as marketing, public relations and advertising, corporate finance transactions, IT provision, recruitment, accountancy, legal advice and haulage.”

As for consumer confidence, this remained high in February, supporting hopes that consumer spending will be decent in the first quarter and help the economy to keep growing at a healthy rate. That said, consumers have faced a prolonged squeeze on their purchasing power that is easing only gradually.

Contrary to talk that UK growth is credit led, the ratio of personal debt to personal income is probably still falling. Corporate bank debt is also falling and average mortgage rates continue to fall. While the number of mortgage approvals for home purchase continues to rise strongly, hitting 76,900 in January, this is still significantly lower than the 100,000 average over the 1995-2009 period.

As for business investment, this is now picking up, helped by the gross operating surplus of companies rising by a healthy 6.6 per cent quarter-on-quarter.

Looking at the broader picture, the growth breakdown for the fourth quarter looks to have been more broadly based and healthier than the popular critique suggests, with business investment showing a much stronger profile and net trade contributing positively. Growth was up 2.7 per cent year-on-year – the best annual growth rate since the first quarter of 2008. And overall the UK economy looks set to expand by a similar 2.7 per cent this year.

All this presents an upbeat backdrop to the Budget on 19 March. The central concern of the Chancellor should be to ensure the recovery pace is sustained, with more encouragement for business and particularly the SME sector to help absorb further job tightening in the public sector.

This recovery may have been slow in coming. To ensure more job opportunities for young graduates and the less skilled alike, there is much still to do. But this recovery is not the weak, pallid thing hobbling on a crutch of debt that critics suggest. We should acknowledge we have some widespread blessings – and count them more than we do.