The US economy is slowing down only very slightly, next week’s numbers should show.
Official figures should tell us that both retail sales and industrial production rose slightly in December, implying that both increased by around 0.7 per cent in real terms in the fourth quarter. This would be consistent with real GDP growing at an annualised rate of just under 3 per cent, after 3.4 per cent growth in the third quarter.
Surveys by the New York and Philadelphia Federal Reserves should corroborate this. They are likely to show that manufacturing growth in both regions is around its long-term average, as are expectations for future activity. All this would suggest that the economy is in decent underlying health, although the government shutdown would depress growth if it continues (it will also mean some of these figures won't be released as scheduled).
In the UK, we’ll get official figures on retail sales in December on Friday. These could show a drop, largely because Black Friday pulled sales into November. In the fourth quarter as a whole, sales are likely to be up by around 0.2 per cent. Even this, however, might overstate the health of retailers, as some of this growth has been bought by discounting which has squeezed profit margins.
The upside of this, though, will be seen in Tuesday’s inflation numbers. These could show that CPI inflation has fallen to 2.2 per cent, its lowest rate since January 2017, thanks in part to a drop in petrol prices.
Lower oil prices are also reducing inflation in the manufacturing sector. Input price inflation should drop to around 5 per cent (it was 10.3 per cent in October) and output price inflation should edge down, too. All this would mean there is no pressing reason for the Bank of England to raise interest rates soon.
We’ll get another reminder next week that the housing market is moribund. The RICS is likely to report that prices are falling and that demand is weak in part because buyers are staying on the sidelines because of the uncertainty caused by Brexit. It would, however, be wrong to blame Brexit alone: lack of affordability is still a big problem.
For equity investors, the most important news next week will be Wednesday’s capital flows numbers from the US Treasury. These should show that foreign investors have been net sellers of US shares in recent months. History tells us that such selling has been a good leading indicator of rising global equity prices in the following 12 months.
