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Next week's economics: 2-6 April

Next week's figures could show strong growth in the US, but a slowdown in the eurozone and UK.
March 28, 2018

Purchasing managers surveys next week might tell us that UK growth is slowing slightly. This might be most evident in manufacturing, where growth could slow to a nine-month low, although it should remain decent. Construction, however, is likely to be weak, with managers citing political uncertainty and rising costs as constraints upon growth. Services growth, on the other hand, is likely to remain steady. Overall, the reports will be consistent with GDP growth in the first quarter of 0.3-0.4 per cent.

One reason to fear a slowdown is that our main trading partner, the eurozone, seems to be cooling off, albeit from a rapid pace. Purchasing managers are expected to confirm flash surveys, which showed manufacturing growth dropping to a 14-month low in March and services growth to a five-month low.

Official figures might be consistent with this. Retail sales volumes in the region are expected to have risen only slightly in February after a fall in January, putting them on course for only marginal growth in the first quarter.

German industrial production data might be better, however, posting a rise after two monthly drops. This would be consistent with decent growth in the quarter.

Elsewhere, we might get mixed signs about global growth. In China, purchasing managers are expected to report that manufacturing growth is weak but stable. In the US, however, we might see near-boom conditions. The Institute for Supply Management (ISM) could report that manufacturing growth is at its strongest since 2004. And the Bureau of Labor Statistics (BLS) should report on Friday a net rise in jobs of over 200,000, and possibly a fall in the unemployment rate to 4 per cent, its lowest for 18 years.

We’ll also see on Friday whether that low rate is pushing up wage growth. Last month’s numbers showed that average hourly earnings rose 2.6 per cent in the year to February after 2.8 per cent in the year to January. We might see a slight pick-up next week. What is striking, however, is that wage inflation has in recent months been surprisingly insensitive to unemployment. If it does rise this year, it will do so only slowly.

We’ll also get inflation news from the euro area. The core rate (which excludes food, energy, alcohol and tobacco) is likely to be more or less unchanged at around 1 per cent – roughly the rate it has been for months. The European Central Bank's target is for inflation to be just under 2 per cent. This tells us there is no need for it to tighten monetary policy for some time.