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Friday 3 February 2012 was, quite simply, the best day in terms of news on the economy for a very long time. The good news may, or may not, last but enjoy it for the now at the very least. And make a note of this article. In time, it may simply look as if it was reporting on a temporary bump, a glorious aberration, in the gloom of our times. On the other hand, just maybe, we have seen the first real signs of proper recovery.

The euro lifts out of recession – apparently

The good news began in that troubled land a few miles to our east; the poor much beleaguered Eurozone.

The latest Purchasing Managers Indices (PMIs) out of that region, which of late has exported nothing but bad news, looked pretty good. Friday saw the release of composite PMIs. These are taken by aggregating the reading for manufacturing and services produced by Markit. Overall, the new composite index for the region came in at 50.4. By historical standards that reading is nothing special. In fact, it was a mere 0.4 percentage points above the 50 no change mark, implying the region only just expanded. But the point is that in December the index had scored 48.3, and the latest figures imply that the euro-area moved out of recession territory in January. The PMI for Germany hit 53.9, a seven month high. In France too, the index was over 50 – 51.2, a five month high. And although the index was less than 50 across most of the region, at least in Spain it hit a six month high, and a four month high in Italy.

Bear:         Alas for Ireland, its index fell to a 24 month low – 47.9 – but let’s not dwell on bad news, not when the discussion point is Golden Friday.

The UK sees big uplift

But for Blighty, the news was even better. The services PMI from Markit/CIPS rose to 56, a ten month high. This followed promising news earlier in the week on construction and manufacturing. In fact the three PMI surveys for the UK collectively indicated the fastest rate of economic growth at the start of 2012 since last March. The combined output index went up for the third month running, rising from 53.2 in December to 55.5. Apparently, the new reading is consistent with a 0.5 per cent growth rate in January.

Okay, that is not a scintillating growth rate, but talk that the UK is in the midst of recession all of a sudden looks overdone. Just a few days ago, NIESR and the IFS both predicted contracting output in the first half of this year. They may prove to be right, but the PMI data does seem to contradict such pessimism.

Indeed, Markit itself said that the risk of recession has fallen.

It is quite interesting to speculate on what effect this news will have on the Bank of England. It was considered to be almost a certainty that the bank would announce more QE on Thursday. But, given this news, will it stay its hand?

The US fires

And yet, if you think that was encouraging, wait until you hear about the US!

The non-manufacturing PMI, produced by ISM, surged in January hitting 56.8, a ten month high. The index tracking new orders, which is a good forward indicator, rose to 59.4, and the employment index shot up, rising from 49.8 to 57.4.

Another bearish note

Paul Dales, Senior US Economist at Capital Economics, said: “It is quite clear that conditions have improved. But we’re reluctant to get too carried away just yet. It is worth remembering that the economy began both 2010 and 2011 strongly before fading later in each year. As the unwinding of the previous fiscal stimulus starts to bite and as global demand falters, something similar may be on the cards this year.”

Back to Bull:       But Chris Williamson from Markit said: “The flow of upbeat news on the health of the US economy shows no sign of abating. A better than expected non-manufacturing survey from the ISM added to a buoyant sister survey of manufacturing earlier in the week. The combined message from the two surveys is that the US economy grew at the fastest rate for ten months in January.”

US jobs

But you haven’t even heard the best bits of news yet.

January was simply the best month for new jobs in the US since April last year. In all, the number of non-farm jobs in January rose by 243,000. Since September, the change in non-farm jobs has been plus 202,000; 112,000; 157,000; 203,000; and 243,000 respectively.

The unemployment rate in the US is now 8.3 per cent – from 9.1 per cent in August, which is a three year low.

Dow hits 45 month high

But you still haven’t heard the best bit yet.

On Friday, the Dow Jones closed at 12862, its highest closing price since May 2008. If you are interested in these things, its pre dot com crash high was 11722, its all-time high was 14164, set in 2007.  And by the way, the FTSE 100 never did pass its pre dot com crash high of 6930, and it stood at 5901 on Friday at closing time.

Can it last?

This all begs the question can it last?

There are lots of reasons to be cynical. The euro crisis does not seem to be close to resolution and ideas being discussed will involve a decade or longer of economic depression across much of the euro area. Will that be tolerated?

Global imbalances do not seem to be even close to a fix.

The US housing market still looks pretty awful.

Sooner or later, the US will have to impose Osborne-like austerity. What effect will this have?

It is far from certain that China can avoid a hard-landing and make the necessary adjustments so that it becomes less export and investment dependent.

But the US (or perhaps US business) has a track record of being able to reinvent itself.

Creative destruction is painful, but necessary for progress. And on Friday 3 February 2012, we saw at least a glimmer of hope that all the reinvention and creative destruction is working.

Around the Internet

There were some good articles over the weekend and this morning.

Some time ago, in thought for the day I argued that leverage was the curse of our age, and that at the very least the government should reduce tax breaks so that it is no longer possible to offset interest against profits. In the ‘FT’, Nigel Lawson made a similar argument: Forget Fred and focus on the real banking scandal

For all the talk, or as the IOD puts it ‘hysteria’, about bankers’ pay, there is a growing feeling that remuneration at the top of the sector is set to fall anyway. In the ‘FT’, Gillian Tett argued bankers’ pay follows a cyclical pattern, and we are now at the stage when it falls. See: Forget the big bonuses; a pay squeeze is coming

And from the ‘Observer’, this piece is worth a read: Even the bankers are saying it: this might be the end for big bonuses

Who was to blame for the finance crisis? This is quite a good piece  So many big names are in the frame

And finally, maybe executive pay and bankers’ pay is part of a bigger issue. Maybe the rise in the gap between the super-rich and the rest is a symptom of bigger problems. This piece in the Guardian, touched on this theme: Why economic inequality leads to collapse

These views and comments are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees