City Insider: Let the bears growl – the data says ‘Boom!’

City Insider - A City perspective on the travel industry from FT journalist David Stevenson

Our City columnist David Stevenson predicts positive times ahead for the UK and US economies – at least until 2012

My office desk is full of torn news stories – once compelling, now ignored – and weighty PDFs from big banks, most of which gently rot away from neglect.

A recent article from our very own Ian Taylor headlined “March bookings showed signs of stronger demand” was destined for such a fate until I decided to take a closer look.

My interest was piqued because of data whose message was a tad unfashionable for our bearish times. Market analysts at GfK Ascent MI had found that sales in the travel sector in March were picking up strongly, and that we might all be a little surprised about 2010.

Behind this industry data lurks what I think is a much more important story – that the global economy and especially the US economy is picking up much, much faster than we all at first dared to hope.

This news flies in the face of the consensus at the moment, which emphasises sovereign defaults, currency risk and a British government cracking under the weight of debt.

But I’d be careful about basing your business actions on these sirens of doom.

There are indeed plenty of problems out there and we may yet slip back into a double dip recession. But I’d put my money on a rather different fate. The US is poised to boom, dragging up poor old Britain and rich young China in its wake.

For me the oracle of this contrarian bullishness is a certain Tim Bond, from the vast investment bank BarCap.

He’s one of their most respected economists and the man charged with turning their wonky analysis into hard investment decisions. 

In my experience Tim is usually more right than wrong and one of the most acute observers of economic data and what it means for the rest of us.

In his most recent paper – Boom! – he reminds us that the all-important US economy is surging ahead, powered by a massive inventory boost, improving job prospects and new capital equipment investment.

Here’s Tim on that recovery, which is currently “the fastest pace of industrial production growth seen for at least 30 years.

“The inventory depletion experienced during the recession was the largest and most severe on record…The natural result is a phase of very fast output growth, foreshadowed by surging orders in the business surveys, as companies scramble to rebuild deficient stock levels. We believe this hectic pace of output growth is almost certain to be sustained in the short run – over the next quarter – given the typical lag between actual output and new order surveys.”

That’s good news, I think you’ll agree, for big companies – but what about poor old consumers and their jobs?

Tim ponders the all-important US data, which usually tends to lead the UK data by around six months.

“The March US payrolls number confirmed a labour market recovery that was already abundantly clear from the preceding three months of household employment data. Contrary to continuing chatter about a jobless recover, the household survey … shows a very healthy trend in jobs gains, registering a rise in employment of 1.113 million jobs since December…. Unarguably, the current labour market recovery is of a different and more vigorous nature than the preceding two cycles and can be reasonably classified as transcribing a ‘V-shaped’ trajectory.”

Surprise, surprise – this improvement in confidence is also likely to result in improved consumer spending.

“The broad implication is not just that US growth might be surprisingly strong, but that strength in US consumer spending might deliver upside surprises for global growth,” 

And just in case you were wondering, there’s also good news for capital equipment spending:

“a swift and strong recovery in capex is starting to materialise.” 

All of this analysis is of huge importance to the UK travel industry – the US economy is picking up much faster than we expected and that will inevitably drag the UK up with it.

The big US cruise operators will be keen to add even more capacity while the big US owned hotel groups will be dusting off their expansion plans.

We should also expect Boeing to kickstart its sales efforts as it capitalises on a rebound in US air traffic.

This confidence will also seep back into the UK through our great international outpost, London, as the financial services sector powers back into profit.

Of course we’ll be challenged by increased taxes and a lacklustre UK housing market but I think the strategic planners out there should be factoring in a very strong 2010 second half and a potentially even stronger first half in 2011.

We’ll worry about the coming stockmarket crash later on in 2012.

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