A tightish labour market is underpinning UK economic growth, next week’s numbers could show.
The Office for National Statistics (ONS) is expected to say on Tuesday that unemployment has fallen again, to just over 1.3m or 3.9 per cent of the workforce – the lowest rate since 1974 – and that wages rose by 3.5 per cent in the three months ending in February.
Thanks in large part to this, retail sales are doing well. Although they might not show much growth in March, that will follow two strong months. Sales volumes in the first quarter are likely to be around 1.1 per cent up on the fourth quarter, suggesting that gross domestic product (GDP) growth is due almost entirely to the consumer.
Whether this is sustainable is, however, doubtful. Tuesday’s figures will show that hours worked are rising at much the same rates as GDP, implying that productivity is still stagnating. They’ll also show that 1.8m are out of the workforce but looking for a job. These two facts suggest it is unlikely that real wages can continue to grow at their current 1.6 per cent annual pace. And even if they do, households might use the gains to save more or borrow less rather than go on a spending spree.
For now, low unemployment is not raising price inflation. Wednesday’s figures should show that CPI inflation isn’t much changed from last month’s 1.9 per cent and that manufacturing output price inflation is also unchanged at around 2.1 per cent. We might, however, see a rise in input price inflation because of the recent uptick in commodity prices.
Overseas, the main development should be signs that the US economy is recovering from the effects of the winter’s government shutdown. Both retail sales and industrial production should show rises. Retail sales, however, will be slightly down quarter on quarter. Surveys of manufacturers by the Philadelphia and New York Feds should show that current and expected trading conditions are both around their long-term averages. That suggests we are some way from recession.
We might even see good news from the eurozone. Germany’s ZEW survey might confirm that optimism among finance professionals has increased, to a 12-month high. (It’s still below its long-term average, though.)
Equity investors could get even better news on Monday. Capital flows data from the US Treasury could show that foreigners’ net selling of US shares has remained near a record high. This is a good sign of low investor sentiment and therefore a good lead indicator of future returns. It is pointing to strong rises in world stock markets over the next 12 months.
