First published: Prospectmagazine.co.uk, 25/07/2016
“Are we heading for a recession” is frequently asked at the moment—but it is not currently the most important economic question
Are we going into a recession, or aren’t we? That is the economic question of the moment, and it came alive last week when the so-called Purchasing Manager Index (PMI) for July was published, showing a plunge to 47.7, from 52.4 in June. This is the lowest level since the spring of 2009. What does this signify, and how should we interpret it? More to the point, are we even asking the most important question?
PMIs and other indicators
The first thing we should note is that the PMI is survey evidence. It does not measure actual changes in anything, but reflects changes in sentiment about output, orders, employment, inventories and so on. Economists pay a lot of attention to PMIs, normally because they constitute the first indicators in the calendar month, and because some of the information, for example on orders, form part of the universe of “leading indicators.” And one month’s survey evidence doesn’t amount to proof of anything. It will clearly require corroboration in subsequent months and of course in hard post-referendum economic data, which in the UK’s case won’t really be available until October….Read more:
