The UK economy is barely growing, if at all, next week’s figures could tell us. Purchasing managers are likely to say that manufacturing and construction output fell in August, while the services sector expanded only slightly. All this would be consistent with the overall economy flatlining.
Uncertainty about Brexit – which is causing companies to postpone capital spending – is only one cause of this. Another is that our main trading partner, the eurozone, is doing badly. Purchasing managers are likely to confirm flash surveys, which showed manufacturing output falling yet again in August, albeit at a slower pace than in the previous two months.
One reason for this is that demand in China is still weak: purchasing managers are likely to report that manufacturing there is still flatlining; this is especially bad for Germany, which is a significant exporter to the country.
We might, though, get glimmers of optimism from Europe. Purchasing managers should confirm that the services sector is expanding. Official figures should show that although retail sales volumes fell in July after a strong June they are now on an upward trend, rising about 2 per cent year on year. And we might see a rise in German industrial production after a shocking slump in June.
The US economy, however, is doing better. The ISM should tell us next week that manufacturing is still growing, albeit more softly than last year. And Friday’s labour market report should show that the economy created almost 200,000 jobs this month, keeping the unemployment rate around 3.7 per cent – which is close to a 50-year low.
Perhaps more important than any of that, however, will be figures on average hourly earnings. Last month these showed an annual rise of 3.2 per cent, suggesting that annual growth has levelled off this year. Markets will welcome a continuation of this, as it would justify cuts in interest rates and point to the economy being able to expand further without generating inflation.
Finally, watch out for the Halifax’s report on house prices. Recently, this has showed prices falling after decent rises last year. But the measure has been showing higher growth than other measures such as those of Rightmove, the Nationwide or the ONS, causing some to doubt its reliability.
