Royal Bank of Scotland : Economics Weekly - Don't leave me this way

Uncertainty surrounding Greek membership of the eurozone hasn't yet dented current business activity for eurozone firms. The area's Purchasing Managers' Index combining all business sectors reached a four year high of 54.1 in June, comfortably above the important 50-mark. It's true that order-books were a little less full in June, with hints that uncertainty about Greece's eurozone future is the cause. But firms continue to hire and in the short term the eurozone needs jobs. So for this we should be thankful.

Retail sales data has been strong in recent months and the Confederation of British Industry (CBI) survey of retailers suggests sentiment is high. The volume of sales judged to be 'good' is at its highest levels in over four years. In particular those involved in the motor trade are enjoying buoyant sales. Things are not so rosy for manufactures. An increasingly familiar story both here and in the US is sluggish exports continue to drag on overall growth.

The number of mortgages approved by the main high street banks rose a touch in May, to 72,000, according to the British Bankers' Association. In cash terms, mortgage lending rose by 1%y/y. However it seems consumers currently prefer other forms of borrowing. Consumer credit (mainly credit cards and personal loans) rose by 5%y/y in May. If that seems healthy it's because it is, especially given negligible inflation. But by way of comparison it's far below the heady 17% or so annual increases in consumer credit seen in the early 2000s.

Surprising no-one, the UK's highest average house prices are to be found in Kensington and Chelsea. Yet residents of this atypical local authority have also seen some of the fastest rises too. At the other end lies Blaenau Gwent, where a house costs £75k on average. That's a mere 6% of the average value in Kensington & Chelsea. To put it another way, one property in Kensington & Chelsea would buy you over 16 in Blaenau Gwent.

The shift towards defined contributory pensions means people have much more choice about what to do with their money. Last week we found out what they thought. People felt that a pension provided through their employer was the safest way to save, though property came second, ahead of personal pensions. Yet when asked which would make more money houses came out the clear winner. That doesn't accurately reflect the UK's recent experience. Since 1990 UK house prices have risen by 250%. Not bad. But over the same period total returns to the FTSE allshare index exceed 600%.

US gross domestic product (GDP) fell by 0.2% in Q1. That's better than the previous estimate of a 0.7% decline. However, gross domestic income, which is pretty much the same as GDP, is reported to have risen by 1.9%. There are two lessons. First, it is difficult to measure the size of any economy, so never place too much emphasis on one number. Second, it looks as though the pace of growth in the US slowed a touch in Q1 but not by enough to cause concern.

Manufacturing growth slowed further in June, according to the first estimate from the Purchasing Mangers' Index. The overall business conditions gauge fell by 0.6 to 53.4. The main problem lies overseas, with the strong dollar weighing on export demand. At home, the effects of the still-low oil price are rippling through the supply chain and acting as a drag on energy-related investment spending. Puzzlingly, firms reported that hiring accelerated, the latest hint that the US might be facing its own productivity puzzle.

That's the question China-watchers have begun to ask of the country's economy, which has been slowing. The answer is we need more evidence. The manufacturing PMI grew a paltry two tenths of a point to 49.6 in June, still indicating a contraction. Indeed, industrial production in the past couple of months has been growing at the same pace as it did in late 2008. But that was in the middle of a financial firestorm when global trade collapsed. China remains beset by two major problems - a troubled banking system and a worn out growth model. A temporary bottoming out of growth cannot mask these issues.