Bill Jamieson: Mixed messages cloud the picture

WE’RE reversing. We’re slumping. We’re growing. We’re slowing. It’s a Double Dip. No it’s not. Yes it is.Pick your way through the maze of conflicting data in the past week and you could go down in a spin with Signpost Sickness.

All this, say some, is evidence that we are at or near a turning point for the economy. But turning where exactly?

If first-hand or anecdotal evidence is a guide, we are in anything but an upturn. Appalling weather has brought much of retail Scotland to a standstill. Those who ventured out in the bitterly cold and wet weather of recent days will have their own vivid testimony to the worst May conditions for tourism and retail for years.

I spent the May bank holiday weekend in the Trossachs, shivering in deserted cafes and garden centres. Hoteliers speak of a wipe-out. And in Glasgow last Thursday I shivered in a deserted rain and windswept Buchanan Street. For those few who had ventured out, shop doorways were places to huddle in, not to enter and buy.

So what’s by way of upturn to discuss? That the evidence is mixed may well be the most encouraging sign, given our own subjective impressions of an economic landscape that looks about as heart-warming as this year’s mid-May weather.

The pointers are, to put it mildly, all over the place. I set out some of the conflicting signals here. Overall, I am still inclined to go with the Organisation for Economic Co-operation and Development (OECD) summation that there is an underlying pick-up in progress, glacial though it may be and near-invisible in certain sectors.

Commentators fret that the extra bank holiday occasioned by the Queen’s Diamond Jubilee may condemn us to a second quarter of contraction. I am not too sure about this: such may be the pent-up demand after two months of daunting weather that any spell of warm conditions over a long weekend could bring the equivalent of a retail-and-leisure-spend sugar rush. But for the moment here is what the traffic lights are showing:

 Latest Bank of Scotland job reports have been signalling a further improvement in the labour market. Growth in permanent vacancies in March was marked and the sharpest since last August. Average pay for permanent and temporary staff rose at the fastest rates in five and seven months respectively. The bank’s PMI report for April, due out tomorrow, is expected to signal further solid increases in Scottish private sector output and employment, helped by services. But:

 Almost four out of ten (38 per cent) Scottish and Northern Irish businesses report a sales downturn according to research by R3, the insolvency trade body. Many businesses are continuing to face difficult times. John Hall, Scottish R3 council member, comments: “In 2011, Scotland had its worst year for corporate failures and the first quarter of this year continued this trend with the highest ever three-month figure on record. Nationally, across three out of the five distress signs, more retailers are suffering.” Half of retailers reported reduced sales volumes and decreased profits compared to a cross-sector average of 37 per cent and 36 per cent respectively. “Consumers’ disposable income has shrunk, confidence is at rock bottom and the impact of this is bound to be felt. Suppliers and investors are also reluctant to take the plunge and support businesses perceived to be struggling so we are seeing more and more suffering but this is not manifesting itself in business failures.”

 Department store group John Lewis reported last Friday another weekly surge in sales. The 27-strong chain enjoyed an 18.3 per cent year-on-year gain in the week to 5 May. This followed gains of 32.4 per cent, 16.5 per cent, 13.9 per cent and 27.5 per cent over the previous four weeks. The latest figures suggest the group’s sales are up 14.1 per cent year-on-year in the 14 weeks trading to 5 May. And online sales are up 61.1 per cent year-on-year in the week to May 5. But:

 The British Retail Consortium reported last week sharply weakened year-on-year retail sales in April. Total retail sales values fell 1 per cent year-on-year, pointing to an even sharper drop in sales volumes. Sales values on a like-for-like basis (which strips out the effect of additional floor space) fell by 3.3 per cent year-on-year in April. Non-food sales weakened more than food sales in April, with sales of clothing, footwear and outdoor products particularly weak. The BRC also reported that consumers remained cautious in making big-ticket purchases. This threatens to hold back overall economic activity given that consumer spending accounts for some 63 per cent of GDP on the expenditure side of the economy.

 From the OECD came news last week that its leading indicator for the UK edged up for a third month running in March. The OECD commented that the UK leading indicator is showing “stronger positive signals” compared with last month’s assessment. The survey also indicated that the UK’s growth cycle outlook was at a turning point. This gradually improving trend supports the belief that the UK is on course for gradual recovery even though the ONS reported that GDP contracted by 0.2 per cent quarter-on-quarter in the first three months of the year, thereby putting the UK officially back in recession. Indeed, the OECD survey is supportive to the suspicion that the UK may well have seen modest underlying growth in the first quarter. But:

 Latest first-quarter construction output data from the ONS delivered a blow to hopes that revised figures would show we skirted recession. They showed that output plunged 4.8 per cent quarter-on-quarter in the first three months rather than by 3.0 per cent as previously reported. The latest construction data, says Howard Archer of IHS Insight, mean that the overall GDP decline will be increased to 0.3 per cent quarter-on-quarter from 0.2 per cent, denting hopes that the preliminary reading of contraction will eventually be revised away.

Construction employment rose modestly for a second month running in April, casting doubt on whether the sector was performing as poorly as ONS figures suggest. However, there is little doubt that public spending constraints have reduced overall expenditure on public buildings, schools and hospitals.

Were this a weather forecast, we wouldn’t know what to wear. But it’s the economy. And those warm zephyrs of recovery look some way off yet.