The Federal Reserve is likely to repeat its promise next week to be "patient" in changing interest rates, despite evidence of continued decent growth.
The The Institute for Supply Management is expected to say on Wednesday that manufacturing activity remains strong, albeit less so than last year. And Friday’s data could show that the economy created a net 200,000 jobs in April and that unemployment remains near a five-year low at 3.8 per cent. This is very gradually raising wage inflation; it is likely to be around 3.3 per cent.
We might, though, see a justification for the Fed’s inactivity next week. The S&P could report on Tuesday that house prices are now falling, being down almost 1 per cent since August. This doesn’t necessarily presage another banking crisis, but might be a warning of a generalised economic slowdown to come.
Elsewhere, we might see signs of recovery. Purchasing managers in China might report a pick-up in manufacturing output. And although their equivalents in the eurozone are likely to confirm that growth is weak (official figures on Tuesday should show first-quarter GDP growth of 0.2 per cent), we could get good news from one lead indicator. The European Central Bank could say on Tuesday that the M1 measure of the money stock is accelerating, growing by almost 7 per cent year on year. This points to the economy recovering later this year.
What’s more, the region does not have an inflation problem. Friday’s figures should show consumer price index (CPI) inflation around 1.5 per cent, with the rate excluding food and energy around 1 per cent.
In the UK, purchasing managers are likely to report stagnation in the construction and services sector and perhaps a slowdown in manufacturing growth. The latter, however, might not be too alarming; it could be because of a reduction in stockpiling of goods caused by the fading threat of a no-deal Brexit. Consumer confidence might also be weak – although this reflects pessimism about the general economic outlook: consumers think the prospects for their personal situations are good.
Bank of England data, meanwhile, could show a further slowdown in consumer credit growth to near a five-year low. This might be because people are using real wage gains to curb their borrowing.
Mortgage approvals are likely to be more or less flat at less than half their 2004 peak – they have been for almost two years. This will remind us that the housing market is very weak.
We’ll see the Bank’s reaction to all this in its rate decision and Inflation Report on Thursday. Weak growth, low inflation and Brexit uncertainty will keep rates on hold. But the Bank will worry that a lack of spare capacity might raise inflation later this year.