The world economy is enjoying strong growth without much inflation, next week’s numbers should show.
In the US, we should see another rise in non-farm payrolls, of around 200,000, which could push the unemployment rate down to 4 per cent, its lowest rate since 2000. Thanks in part to this, the Conference Board should report that consumer confidence is still close to a 17-year high. And the ISM should report another strong month for manufacturing output.
Good growth isn’t confined to the US, though, The eurozone should report that real GDP grew by 0.6 per cent in the fourth quarter; Japan should see a third successive month of decent expansion in manufacturing; and purchasing managers in China might report growth at a 13-month high, albeit quite weak.
This worldwide expansion is not, however, raising inflation. Eurozone figures should show that the 'core' consumer prices index (CPI) inflation rate is flat at 1.1 per cent – lower than it was in the summer. And US figures should show that low unemployment isn’t yet raising wage inflation: this is likely to be around 2.6 per cent, implying that it has flatlined since mid-2016. Thanks in part to this, the Fed is likely to leave interest rates unchanged on Wednesday, and repeat that they will rise only gradually and stay below historically normal levels.
UK manufacturers are sharing in this upturn; purchasing managers will report strong growth on Thursday.
Other figures, however, will be more worrying. Purchasing managers are also likely to report weakness in construction. That will be consistent with Bank of England data that could show a slowdown in bank lending to companies. Both are signs that companies are loath to invest in longer-lived assets.
Consumers, though, are also getting gloomier. GfK could report that confidence has fallen to its lowest level since 2013, and the Bank of England could report a slowdown in consumer credit growth.
The housing market is also in the doldrums. The Bank of England is likely to report that mortgage approvals are flat. And although the Nationwide might report a small rise in house prices, the annual rate of increase in them is likely to be below CPI inflation, implying prices are falling in real terms.
Perhaps the best news next week, though, won’t get much attention. The Bureau of Labor Statistics could report that US productivity posted a second successive strong rise in the fourth quarter. This might mean that the long slowdown in productivity growth is being reversed. If so, it points to faster trend growth – which is good for equities.
