There’s a huge contrast between the US and eurozone economies, next week’s numbers could show.
The US should see signs of strong growth. Retail sales should post a rise in June, leaving them around 1 per cent higher in the second quarter than the first in real terms. Industrial production should also recover strongly in June after May’s slight dip, with surveys by the Philadelphia and New York Feds likely to show that manufacturers expect growth to continue. All this should confirm economists’ expectations that real GDP could grow at an annualised rate of 5 per cent in the second quarter – which would be the third best growth rate this century.
By contrast, things are looking grim in the eurozone. Germany’s ZEW survey of finance professionals could show that economic optimism is at a six-year low. This isn’t just because of fears of a trade war: the German economy has been cooling all year.
In the UK, meanwhile, the main news is likely to be the ongoing failure of wage inflation to rise in the face of low unemployment. Tuesday’s figures could show that unemployment has fallen below 1.4m for the first time since 2004, and possibly even to a 42-year low. Wage growth, however, might be stuck at 2.5 per cent – lower than a few months ago. Which means wages are barely growing at all in real terms.
In this context, we should be wary of Thursday’s retail sales numbers. These might show that sales volumes jumped by 2 per cent in the second quarter. Such growth, however, is due in part to a catch-up after snow depressed March’s sales. With real wages flat and savings low, such growth is obviously unsustainable.
More bad news might come on Wednesday. Figures then could show that CPI inflation rose slightly last month because of higher petrol prices; producer output and input price inflation might also rise for the same reason. With oil prices having leveled off lately, this isn't a great concern, however.
We might, though, get a hint of good news on Tuesday. Figures then could show that hours worked fell in the last three months, which would mean that productivity rose. If this continues it should eventually raise real wages to the benefit of retailers as well as workers. It’s too soon to say for sure, however, that this really is the start of a trend.
Finally, watch out for US capital flows numbers on Monday. These have recently shown a decline in foreign buying of US equities, albeit from a high level. As these are a good lead indicator of future returns on UK shares, this means the outlook for the market is becoming less bearish.
