Down in the real economy

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Image caption Manufacturing exports went into retreat for the first time in more than a year

Continued volatility is one of the safer bets on the financial markets as we start another white-knuckle week.

Don't expect them to act rationally. Untrusting of Silvio Berlusconi's seriousness in handling the crisis, they were unhappier still when he said he was going.

And if the equity markets were serious about the immense risks of a disorderly euro-collapse, you might well wonder why they haven't fallen much further.

So if the markets are a hard way to read the strength of the economy, what are businesses themselves saying?

This morning, we get several snapshots giving us some indication of where they think they're heading.

Burning through backlogs

The Purchasing Managers Index of opinion among business operators across Scotland, compiled for Bank of Scotland by Markit, was still in growth territory in October, as it has been since bad winter weather hit it hard. But like last week's Fraser of Allander Institute forecasts, it's only just positive, and it's been getting weaker.

New business is down for a second month. Companies are burning through backlogs of work to sustain output growth, with a sharp drop in outstanding work the worst since April of last year.

And while costs rise, but output prices remain subdued, staff numbers are falling for the third consecutive month, though not by a startling margin.

Among the more alarming figures, manufacturing exports went into retreat for the first time in more than a year. That's been the sector holding out the best hopes, but of course, it's suffering from uncertainty among overseas customers.

Slow and painful

The Chartered Institute of Personnel and Development is sounding similar warning bells as the working week gets under way, with a survey appearing to show UK employers "braced for a slow, painful employment contraction".

Its quarterly update, covering 1,021 personnel executives across the UK, found business employers in "wait and see mode" while they see how tough the economy gets this winter. That includes a pull-back in recruiting intentions across the board, and falls in the number looking to migrant workers or to offshoring of jobs.

It concludes the hopes of the private sector creating jobs where the public sector is shedding them is not working out for now, with forecasts falling short of those from the Office for Budget Responsibility, which informs UK Government economic planning.

While 23% of private sector employers are postponing pay reviews, only one in three of the 77% who plan reviews by August 2012 have expectations of raising pay, and that is by an average of less than 1.5% on basic pay.

You probably don't need reminding that's a long way short of inflation, and that gap between earnings and inflation is where many people are experiencing the painful reality of the downturn.

Energy lock-ins

The Federation of Small Businesses in Scotland has its own survey material, reflecting the increased overhead costs facing its members - or at least the 165 who replied to the wider UK survey in September.

With energy prices on the rise, perhaps the main surprise is that 5% have seen their overheads decrease. Some 84% have seen them rise.

Utility bills were the main culprit (71%), followed by raw materials or supplies (45%) and 26% said their finance costs had gone up.

Compared to a much larger UK sample, the problem of finance costs was seven percentage points higher in Scotland, while those citing utility costs on the rise were 14 percentage points higher.

This has the FSB calling for businesses to be given consideration alongside householders in protecting them from what it calls "sharp practice" in the way power companies structure energy contracts with lock-in clauses.

It's also calling for a better one-stop information service on energy and waste advice, and voicing its unhappiness at the sudden halving of subsidy for solar energy feed in - announced by the UK government recently, after a bumper year of installations and now expected to lead from boom to bust for small installers.

Start-up obstacles

To mark the start of Global Entrepreneurship Week, Clydesdale Bank has released a survey it carried out last June, in which it learned from 200 Scottish businesses that getting finance is seen as only one of the three big obstacles to business start-up and growth.

It scores 24% among the most important factors. But wisely, slightly more of those business people surveyed recognised a secure market is the vital ingredient to start a business, and 21% said it's entrepreneurial flair and good ideas.

Of course, it's all of the above. But this really matters, because it's the glaring problem with the Scottish economy. And this survey is a reminder - albeit going back to the rosier days of mid-summer - at least two of the three key ingredients are proving difficult.

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