Next week’s numbers will highlight an ongoing paradox about the UK economy. On the one hand, Tuesday’s numbers could show another drop in unemployment to under 1.3m, taking the jobless rate down to a 45-year low. But, on the other hand, they could show that annual wage inflation has fallen so far this year, from 3.5 per cent in December to around 3.2 per cent.
Two explanations of this paradox will be in other figures on Tuesday. They’ll show that there are 1.8m people out of the labour market wanting a job, so there is still excess supply of labour. And they’ll show that labour productivity is falling: hours worked probably rose around 0.5 per cent in the three months to May while GDP flatlined. Ultimately, if we don’t produce more we can’t earn more.
Wednesday’s figures will show that consumer price inflation is stable at around 2 per cent. They’ll also show input price inflation at a three-year low of under 1 per cent, implying there’s not much inflation in the pipeline. With unit wage costs rising, however, such low inflation implies that profit margins are under pressure.
Thursday’s numbers could show that retail sales were weak in June, thanks in part to the bad weather. Even so, sales volumes are likely to be up by around 0.4 per cent in the quarter, implying they are doing better than much of the economy. Retailers’ problems are more about margins than volumes.
In the US, meanwhile, there’ll be mixed news. Retail sales could show yet more growth in June, implying volume growth in the quarter of well over 1 per cent. Industrial production, however, might have been flat in the quarter. And if next week’s surveys by the New York and Philadelphia Feds confirm last month’s readings, they’ll show that economic optimism has fallen recently. This is one reason why the Fed is considering cutting rates.
We might also see declining optimism in Germany. If the ZEW’s survey of finance professionals confirms last month’s reading, it’ll slow a sharp drop in confidence. This is being blamed on fears of a no-deal Brexit and of US-China trade tensions, only one of which has receded since the survey.
We should, though, get better news in capital flows data from the US Treasury on Tuesday. These should show that foreigners have been big net sellers of US equities in recent months, which is an indicator that investor sentiment is weak. In the past, this has been a good lead indicator of rising share prices, simply because it tells us that lots of bad news is already discounted.
