So why haven't we started believing the good news?

Pity the poor journalist. Nearly all the economic news is good at present, and good news is no news.

As an ex-Treasury insider I am often approached by journalists trying to find something we should all worry about. In the past week I have been invited to worry about the lack of investment (it has actually risen at an annual rate of over 7 per cent over the past three quarters), about the Government's failure to tax the rich (even though the last Budget highlighted six new anti-avoidance measures), about the absence of a feel- good factor (despite retail sales rising at an annual rate of 3-4 per cent all year) and about the imminent rise of inflation and interest rates (even though underlying producer prices rose by little more than half a percentage point in the first six months of this year).

Yet there is an interesting story to tell about the British economy that no one has wanted to talk about. Consider the following facts. Over the past year the FT-SE all-share index has risen by 8 per cent. However, the consumer goods sector has hardly risen at all and food retailing is down 8 per cent.

In contrast, general manufacturing is up 11 per cent and some of the sub-sectors are performing spectacularly well, notably vehicles (up 30 per cent) and engineering (up 18 per cent).

That is in stark contrast to developments in the 1980s, when consumer spending was persistently strong but manufacturing industry permanently weak. What has caused this reversal?

The revival of manufacturing is an integral part of an economic recovery currently earning rave reviews from professional economy watchers. Exports are doing well, which means that the recovery will not be snuffed out by a balance of payments crisis, while the strong growth in investment will increase our capacity to produce. As long as capacity grows faster than output we can continue to enjoy growth without inflation.

In short, although this recovery is unspectacular, it is eminently sustainable. It is based on an economic policy straight out of the textbooks - a devaluation to enable British firms to sell more exports and tax increases to curb consumption and thus ensure that resources are available to produce those extra exports. The exports mainly come from the manufacturing sector, which is finding that it can put up prices and still undercut competitors.

With world markets recovering and volumes and margins now both moving in the right direction, it is little wonder that share prices in this sector of the economy have outperformed the index.

Of course, the Government - which was so roundly blamed for the decline of manufacturing - gets no credit for its revival because the devaluation was an accident hailed as a disaster while the tax increases followed too quickly after an election won on promises of tax cuts. Nevertheless, the timing of the exit from the exchange rate mechanism, just five months into the life of the newly- elected government, has given the Treasury a rare opportunity to pursue a necessary but politically unpopular policy.

In March 1993, Norman Lamont, a Thatcherite and monetarist Chancellor, announced a three-year programme of tax increases. The main purpose of these was to reduce the huge budget deficit. But they have been embraced by Kenneth Clarke, who comes from the opposite wing of the Conservative Party, as a useful piece of demand management. In his November Budget, Mr Clarke confirmed his predecessor's tax increases and added a couple of new taxes of his own.

The upshot is that we are embarked upon a recovery in which consumer spending is going to play a smaller role than it did in the 1980s. That will not be difficult. A remarkable feature of economic developments in Britain over the past 15 years has been that consumer spending has grown nearly 1 per cent per annum faster than output. That was clearly an unsustainable performance, made possible only by the arrival of North Sea oil.

When Margaret Thatcher won her first election in 1979 it was widely acknowledged to be a very good election to win. It was known that oil revenues would create a spending bonanza which political commentators at the time said might well keep the Conservatives in power for 15 years.

The oil provided us with unearned income, so we could spend more without working more. Some of the extra income came in the form of tax cuts. The rest came through a stronger exchange rate, which made foreign goods - and notably foreign holidays, which mushroomed in the 1980s - much cheaper.

A decade of rapid spending growth produced some highly visible changes in the face of retailing. New shopping malls appeared in virtually every town centre. They competed for the trade of the one-stop shopper with new out-of-town superstores easily accessible by car.

Together they transformed the shopping experience, offering a hugely extended range of products and extended opening hours, including Sundays. To cap it all, new technology at the checkouts virtually eliminated queueing.

This was the positive legacy of the oil bonanza. It should be put in the balance, though it rarely is, against the closure of so much manufacturing capacity in the early 1980s as a result of the strong exchange rate.

However, the bonanza is long gone. Britain's oil revenues fell sharply eight years ago when the oil price tumbled. Since then output has been trending downwards. The loss of the oil revenues pushed our balance of payments, in surplus in the early 1980s, into deficit in 1987 and it has been in deficit ever since. The consumption growth of the early 1980s was paid for out of oil money. But in the late 1980s we were living on tick.

The 1990s is the decade of reckoning. Consumers have been living within their income and paying off debt. The Government is starting to do the same. Against a background of steadily rising taxes, consumer spending should rise more slowly than output, leaving room for exports and investment to outperform.

There are two obvious consequences. Consumers, who still judge the economic recovery by the yardstick of the 1980s, will continue to feel less than good for the foreseeable future. And retailers, whose store-building programme was based on a much higher level of consumption than they are now seeing, face serious problems of excess capacity.

Fierce price competition is the inevitable result of too many stores chasing too few shoppers, so the retail sector is not only experiencing lower volumes than it had hoped but also slimmer margins.

So it is not surprising that the stock market likes manufacturing but not the consumer goods sector or the food retailers.

But why do we hear much more about the absence of feel-good than we do about the revival of manufacturing?

Perhaps it is because bad news is real news, whereas good news could just be government propaganda. But, when people in the City are putting money on it, you should start to believe the good news.

Bill Robinson, formerly special adviser to Norman Lamont, is a director of the consultancy London Economics.

Gavyn Davies is on holiday.