Low unemployment isn’t yet pushing up wage growth, next week’s numbers could show.
Although Tuesday’s figures could show that unemployment has fallen below 1.4 million for the first time since 1976, they’ll also show that wage inflation is stuck around 2.5 per cent. Although this is higher than it was a year ago, it’s lower than it was earlier this year. With consumer price inflation at 2.4 per cent – and no change expected in Wednesday’s numbers - this means real wages are growing only very slightly.
We might, however, see a reason for hope on this front in Tuesday’s numbers. They might show that overall hours worked fell slightly in the second quarter. With GDP having risen then, this means productivity rose strongly. If this continues (and it is an if) then real wages should eventually grow more strongly.
In the context of flattish real wages, Thursday’s retail sales numbers might be quite good. They could show a small rise in July after June’s drop, leaving sales volumes almost three per cent up on a year ago. One reason for such growth is that more people are in work. But it might also be that some people are borrowing more, in the anticipation of pay rises.
Wednesday’s figures, however, could give us a slight cause for concern. They could show that manufacturers’ input prices have risen more than 10 per cent in the 12 months to July, and because of this, output price inflation has risen. However, with oil and commodity prices having dipped a little since early July, these inflation rates might fall back soon.
Elsewhere, the main news should be the ongoing strength of the US economy. Official figures should show that both industrial production and retail sales rose nicely in July. And surveys by the New York and Philadelphia Feds should confirm that manufacturing activity is still very strong. Those surveys might, however, also show that expectations for future activity have cooled off since the spring.
In the euro zone, official figures could show that industrial production fell in June, albeit after a big rise in May. This would leave output lower than it was at the end of last year. Most economists, however, suspect this softness might only be temporary.
One other figure to watch will be Tuesday’s US capital flows numbers. These could show that foreign investors have been net sellers of US equities in recent months. This is good news for equity investors, as such selling is often a sign of weak confidence and hence a lead indicator of rising share prices in coming months as confidence returns. For now, though, this indicator isn’t sending a strong buy signal – but it is better for equities than it was a few months ago.
