Recovery hope as U.S. shares hit 3-year high

HOPES for an economic recovery were boosted last night as shares in America’s leading index, the Dow Jones, closed above 13,000 for the first time since May 2008.

In London the FTSE 100, which tracks Britain’s biggest companies, rose 12.36 points to 5,927.91.

Dealers hope the flagship UK share index will break through the 6,000 barrier today.

The news will be welcomed by savers whose ISAS and pension funds have been pummelled as share prices have fallen in the financial crisis. The Dow rose 24 points to end at 13,005.

It pushed through the 13,000 barrier earlier this month but fell back below that level – which dealers view as psychologically important – before the close of business.

Markets on both sides of the Atlantic have been cheered by measures from the European Central Bank to bolster the financial system in the troubled eurozone and by the latest Greek rescue bid.

In Germany, the Dax index was up 38.03 points to 6,887 and the French CAC index rose 12.54 points to 3,453.99.

In the U.S., spirits were also lifted by buoyant consumer confidence data and a sharp drop in oil prices, which have increased amid fears of tensions with Iran.

Consumer confidence in the U.S. rose to its highest level for a year thanks to a better outlook for the jobs market.

Economists view this as a positive sign since consumer spending accounts for more than twothirds of U.S. economic activity.

Brent crude dropped more than $2 a barrel to settle at $121.55, easing worries that motorists and businesses will be hammered by escalating fuel costs.

Around two-thirds of the largest U.S. firms have reported profits that beat analysts’ forecasts.

And the number of Americans on unemployment benefit in January fell to its lowest point in almost four years.

AT THE start of this year, the economics fraternity was in almost complete agreement. Britain was facing a dismal 2012, with the nation potentially heading for a double-dip recession, unemployment climbing, public finances in a mess and manufacturing exports at the mercy of a meltdown in Euroland.

When there is so much agreement among the nation’s economists, with respected institutions including the National Institute of Economic and Social Research, as well as banks such as Standard Chartered, predicting negative growth, you can be sure of one thing. They have almost certainly over-egged their predictions.

A kind of ‘group think’ sets in that leads many of the commentators — often encouraged by the BBC, which seems to revel i n the travails of this Tory- l ed Government — to see the absolute worst in each new piece of economic data.

In recent months, the economic ghouls — who f ashionably deprecate Britain’s position — have chosen to see only the downside, such as rising unemployment, and to ignore the positive indicators coming from key surveys of the manufacturing, services and construction sectors.

Almost all these indicators of output, carefully collected from real businesses making and selling products and services at home and overseas, have been pointing stubbornly upwards.

As this paper’s City Editor, every day I am inundated with emails outlining the latest trading and profits performances of our leading companies.

The message from the latest batch of results, coming from firms as diverse as engineering giant GKN (it makes car parts and the wings for the Airbus aircraft) to Whitbread — which owns Costa coffee shops — and house-builder Persimmon, is largely the same: sales and profits are climbing at a double-digit pace.

The nation’s surprising — and very welcome — growth is largely the result of the efforts of thousands of such large companies and the tens of thousands of small and medium-sized enterprises that service their needs.

When private sector firms are prospering, so is the rest of the economy. Of course, it is not only these encouraging trends t hat should make t his a memorable year.

It could hardly be more timely that we’re about to enjoy a huge upsurge in patriotic fervour with the Queen’s Diamond Jubilee, the European Football Championships and, of course, the Olympics.

Hope

Major national celebrations like these tend to result in people spending more money on food and drink, restaurants and so on.

Visitors to Stratford in East London report, for instance, that the magnificent Westfield shopping centre close to the Olympic Park is already flooded with shoppers and sightseers — a sign of things to come, one trusts.

Aside from the hope that we’ll all have reason to feel proud of our country in 2012, the most basic indicator that Britain Plc is getting back on its feet is the unexpected rally in share prices, which benefits ordinary families because it boosts the value of their pensions.

The FTSE 100 index has forged ahead by a shade under 20 per cent since the autumn, and is currently less than 100 points off the sustained high levels above 6,000 last seen before the devastating financial crisis of 2008.

And it is not just business that is feeling better, despite the efforts of the pessimists to talk the nation into a fug of negative economic sentiment.

Though we are constantly told the average household is in dire straits financially, consumer spending in the last quarter of 2011 actually grew by 0.5 per cent — and that against the unprepossessing background of the euro crisis just across the Channel — and has continued to climb in the first weeks of 2012.

All this was helped by several major retailers reporting a bounce in sales over Christmas.

Only yesterday, t he EU reported that the confidence of British consumers climbed for the second consecutive month in February and now stands at its highest level in six months.

The employers’ group the CBI also reported a strong growth in High Street sales in February, with food and essentials leading the charge.

This economic renaissance has been helped by record low interest rates of just 0.5 per cent — which makes getting credit cheaper — as well as the Bank of England’s latest injection of £ 50 billion of cash into the financial system.

It is starting to look as if these efforts have not been entirely in vain. So a brighter picture can be drawn from almost all the latest official economic data.

Yes, unemployment is still rising, and, sadly, there are more than one million young people (aged 16 to 24) on the dole.

Nevertheless, the jobless data for the past two months shows that the number of newly unemployed claiming the jobseeker’s allowance has greatly subsided.

Importantly, too, the inflation rate — which peaked at a worrying 5. 2 per cent in September, eating sharply into household incomes — is heading downwards, and currently stands at 3.6 per cent.

As it is reduced — and the governor of the Bank of England Sir Mervyn King is predicting it could be at or near to the Bank’s target of 2 per cent by the autumn — there will be more spending power in the pockets of households.

It will bring an end to a s queeze as hard as anything seen in this country since the Twenties.

Perhaps most encouraging of all, especially to a Government that has talked so much about re-balancing the economy away from the City and the banking sector and towards other areas such as engineering, i s the improvement in the country’s balance of payments with the rest of the world.

In January, the UK’S trade in goods and services was just £ 1. 1 bill i on in deficit, t he smallest since April 2003, when the shortfall was £0.9 billion.

Behind this number — against all the odds given the terrible disruption to the European economies — is a 6 per cent lift in exports last year.

The big question for many experts is whether this can be sustained, given that Europe, our biggest overseas market, looks as if it will, at the very best, stagnate this year.

The answer is probably yes.

Profits

The extraordinarily resilient U.S. economy, Britain’s second most important export market after Europe, is on the path to recovery after one of the bleakest periods in its history.

U.S. unemployment has fallen in each of the past 17 months, with 250,000 new jobs created in January alone.

Car sales, one of the mainsprings of American output, have climbed to record levels — translating into big profits for General Motors and bringing back memories of former chairman Charles Wilson’s famous comment in the Fifties: ‘What is good for General Motors is good for America and vice versa’. The other pi l l ar of U. S. expansion, the housing and construction industry, is finally showing signs of throwing off the appalling financial hangover of the sub- prime mortgage l ending scandal, aided by shrinking numbers of repossessions and low mortgage rates.

Add to this positive news the continued boom in the fast-growing economies of the Pacific, Latin America and Africa, and the building blocks are in place for a worldwide recovery that will be reflected in Britain, providing our manufacturers and service companies can get their act together.

Resilience

Of course, there are some dark clouds t hat will threaten the well-being of the nation’s financial health for some time to come.

The uncertainty in the Middle East is keeping world oil prices at record levels, trading at more than $125 a barrel, and thus imposing extra costs on every driver, consumer and business across the land.

Moreover, though the IMF and Brussels have brought a temporary reprieve for Greece, the parlous economic situation there could unravel at any point — and bring the other dominoes of Portugal, Ireland and even Spain crashing down with it.

It is remarkable, however, that in the face of these huge challenges, households and businesses here in Britain are showing enormous stoicism and resilience. This startling change in mood across the nation could not have come too soon.

It means Chancellor George Osborne can afford to approach the March Budget with a great deal more optimism than seemed likely just a few short months ago.