14 November 2021

Measuring the Mood

Brian Tora takes a look back at the last couple of weeks. Providing his insight into the PMI, the Autumn Budget and nuclear energy.


I came across an interesting measure of economic activity the other day. Often it is the most unlikely of indicators that provides the most interesting of indications. A decade or so ago few would have heard of the Purchasing Managers Index, or PMI, but today it is recognised as one of the best forward-looking indicators available. It does make sense. Purchasing managers should know whether they need to increase their level of buying in order to cope with an increase in demand, or cut back because the outlook is less certain.

The so-called Pret Index was new to me, though. Again, it makes plenty of sense if what you are trying to do is measure how much offices and businesses are returning to normal after the effects of the pandemic which saw so many of us working from home. After all, if you are in the office and need a quick lunchtime snack or a coffee and cake for elevenses, why not pop down to the local Pret a Manger for your caffeine fix, sandwich or slice of cake.

And these shops are not just in office districts. You will find them in airports and shopping centres, so how busy they are can be a good indicator of how many people have returned to the office or are prepared to take a flight. The latest set of indices makes mixed reading. Airports are still well below pre-pandemic levels, but City centres are picking up, even though they are yet to return to the level of activity of two years ago. I shall watch out for this index in the future for guidance as to how close to what we expect as normal we might achieve.

Frankly, there hasn’t been a lot else to get one’s teeth into recently. The Autumn Budget made little difference to investors. Nor has COP 26 made much of an impact on markets. Of course, you might conclude that Rolls Royce obtaining the funding to build a series of mini nuclear reactors to provide clean electricity is a direct result of the efforts being made in Glasgow to lessen our dependence on fossil fuels. Not that nuclear is an entirely popular option.

Presently about a fifth of our electricity generation comes from nuclear power. Contrast that with France where EDF operate 58 nuclear power plants providing some 80% of the country’s electricity needs. These Small Modular Reactors, as they are known, are not that mini, each being about the size of a football pitch. But at £2bn each the cost is a mere tenth of the estimated price tag attached to Sizewell.

Whatever your views on whether or not we should increase our commitment to nuclear energy, the news was enough to give a useful fillip to the Rolls Royce share price. In a week where economic and corporate news is relatively thin on the ground, such stories can be heartening. While we will be hearing from leading central bankers during the course of this week, it is nevertheless a relatively quiet time of the year.

Perhaps that is because investors’ attention is increasingly being focussed on Christmas, which is approaching at what seems an alarming pace. Before the festive season arrives, we will be going through “Black Friday”, an American import that focusses on the propensity of US consumers to spend on the Friday between Thanksgiving Day and the weekend. Already my inbox is clogged with exhortations to go out and buy which I will quite happily ignore.

 

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