The US economy is growing nicely, next week’s figures should show. Both retail sales and industrial production should post small rises in September, and surveys from the New York and Philadelphia Federal Reserves should report still strong manufacturing activity.
All this will be consistent with economists’ expectations that real GDP will have grown at an annualised rate of over 3 per cent in the third quarter. That’s less than the second-quarter’s 4.2 per cent, but still strong by the standards of the post-2009 upturn.
There might, however, be a small cloud in this otherwise sunny picture. Those surveys could show that manufacturers’ optimism is only around its post-2010 average, which points to growth moderating in coming months. This would be consistent with the Fed’s tightening of monetary policy taking effect.
In the UK, the main news could be that wage inflation is finally picking up; annual growth in pay excluding bonuses might hit 3 per cent for the first time in three years. The main surprise about this is that it has not happened sooner, given the fall in unemployment; other figures on Tuesday could show that the rate has fallen below 4 per cent for the first time since 1974.
This rise in wage growth is not, however, inflationary. Other figures on Tuesday should show that hours worked were flat in the last three months, which implies that productivity is now growing nicely. This means higher pay is largely offset by efficiency gains.
Wednesday’s inflation numbers should corroborate this. CPI inflation should be roughly unchanged at around 2.7 per cent. The core rate – which excludes food, energy, alcohol and tobacco – should also be unchanged at around 2.5 per cent; it hasn’t moved much for months. Nor is there much inflation in the pipeline. Manufacturing output price inflation should show a fall. And input price inflation should be more or less stable at just over 8.5 per cent, as sterling’s weakness and higher oil prices offset softness in many non-oil commodities.
The fact that wages are now rising in real terms is boosting high street spending. Thursday’s figures should show that while sales volumes were flat in September after two good rises, they rose by a hefty 1.4 per cent quarter on quarter.
This is good news not just for retailers but all equity investors: the ratio of retail sales to share prices can help predict future returns, although this still points to only modest returns.
There is, though, a more bullish signal. On Monday, the US Treasury should report that foreign investors have been net sellers of US equities in recent months. In the past, this has been a sign of weak sentiment and hence of rising prices in the following 12 months as sentiment mean-reverts.
