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OPINION

Next week's economics: Sept 1 - 5

Next week's economics: Sept 1 - 5
August 28, 2014
Next week's economics: Sept 1 - 5

Monday’s purchasing managers’ survey could show that manufacturing growth has slowed, perhaps to a 13-month low. A big reason for this is that the UK is being dragged down by its biggest trading partner, the euro area. Purchasing managers’ surveys there are expected to confirm flash surveys, which showed both manufacturing and services growth slowing. This picture should be confirmed by official euro area data on Wednesday which are likely to show that retail sales volumes have risen by barely 1 per cent in the past 12 months and are still 4 percent below their 2007 peak, and by German data on Friday which could show that industrial production is lower than it was in March and April.

However, the euro area isn't the UK's only problem. Another is that companies have for years been paying off debt rather than investing. Hopes that this problem was fading were undermined by data last month showing a renewed repayment of bank debt. If Monday’s figures continue this, fears will grow that investment might not rise as much as the Bank of England or OBR expect.

We might also see signs of a slowdown in house prices, when the RICS reports its latest survey of estate agents on Friday; this would be consistent with Monday’s figures which are likely to show that while mortgage approvals have picked up recently, mortgage lending is growing at an annual rate of only 1.5 per cent. Lower house price inflation, however, only matters in macroeconomic terms to the extent that it betokens a decline in income expectations – and it’s not clear whether this is the case.

It might be hoped that the ECB will do something on Thursday to combat the ongoing weakness of the economy. However, aside from a possible announcement about progress on plans to buy back asset-backed securities, it might not do much next week, preferring to wait and see what impact targeted longer-term refinancing operations (essentially bank subsidies) – which begin later in the month – will have.

Luckily, though, the US economy is doing well. On Monday, the ISM is likely to report continued strong growth in manufacturing. On Wednesday, the Fed’s beige book should say that the economy is growing well in all regions. And on Friday, official figures should show a rise in non-farm payrolls of around 250,000 and a fall in the official unemployment rate to around 6.1 per cent.

These numbers will reinforce expectations of an end to quantitative easing and even of a rise in interest rates. These, though, are the problems of success; the euro area, meanwhile, faces the problems of failure.