UK consumer spending is faltering. Next Thursday’s official figures could show that sales volumes last month were lower than a year ago – which would be the first year-on-year fall since 2013.
The main cause of this will be clear in other numbers: real wages are falling.
On Tuesday the ONS might report another rise in CPI inflation, to around 3.1 per cent, thanks mainly to a fall in food prices dropping out of the data.
Most economists, however, think we’re near the peak for inflation, because last year’s rise in import prices should fall out of the data in coming months.
In fact, we’ll see signs of this in Tuesday’s producer price numbers. Input price inflation should fall below 5 per cent for the first time since July 2016, and output price inflation could fall to its lowest rate this year (below 3 per cent) as last October’s rises because of sterling’s fall disappear from the data.
Wages, however, aren’t keeping up with prices. Wednesday’s figures are likely to show them rising by around 2.2 per cent year on year – less than a year ago. In this context, falling retail sales aren’t so odd.
It might seem strange that wage growth is so low given that Wednesday’s figures will also show that the unemployment rate, at around 4.2 per cent, is at its lowest since 1975. However, there are 2m people out of the labour market wanting to work; that potential supply is holding down wages.
Also, productivity is stagnating. Wednesday’s figures will show that total hours rose by around 0.4 per cent in the third quarter, implying only minuscule productivity growth. Quite simply, if we’re not producing more we can’t pay ourselves more and so cannot spend more.
Elsewhere, the main news should be of continued growth in the US. Industrial production should show a decent rise in October, helped in part by oil production recovering from the hurricanes. Surveys by the New York and Philadelphia Feds, however, should confirm that production generally is rising and is expected to continue doing so.
Retail sales numbers are less certain, though. Last month these were boosted by people buying cars to replace those damaged by the hurricanes. Spending could therefore fall back. It has been weak for most of this year.
Watch out too for capital flows data from the US Treasury on Tuesday. The key thing here is net foreign buying of US equities; this has been a good lead indicator of annual UK equity returns. In the last 12 months, foreigners have been net buyers, which predicts poor returns on equities generally. In the last two months, however, they have been net sellers. If that continues, it paints a rosier picture of future returns.
