Figures next week should reduce fears of an imminent US recession. Official numbers should show that although industrial production fell slightly in September after a strong August, output rose by around 0.4 per cent in the quarter as a whole. Retail sales should be stronger, rising in September to give an inflation-adjusted rise in the quarter of just under 1 per cent. This picture should be corroborated by surveys from the New York and Philadelphia Federal Reserves, both of which should show manufacturers reporting current trading conditions to be around their post-2009 averages. All this would be consistent with real GDP growing at an annualised rate of over 2 per cent in the third quarter.
It won’t all be good news, though. Those New York and Philadelphia surveys could show that companies’ expectations are downbeat, which points to a slowdown in the coming months.
The US is, however, doing better than the eurozone. Although official figures should show that industrial production stabilised in August after two falls, this will put output on course for a drop in Q3 as a whole, suggesting that the region is close to recession if not actually in one. There might, though, be a glimmer of hope in the ZEW survey of finance professionals as this could show pessimism to be at a five-month low – although this has recently not been a great lead indicator.
In the UK, the main news could be of a slight softening in the labour market, with unemployment levelling off at just under 1.3m (with another 1.9m out of the labourforce wanting a job) and total hours worked falling slightly.
Despite this, wage inflation should still be near an 11-year high of around 4 per cent. With productivity still weak, this means that profit margins are being squeezed. Such a squeeze can only be reversed if wage inflation falls back; if productivity recovers; or if inflation rises.
There is, though, little sign of the latter. Although CPI inflation could rise from last month’s 1.7 per cent this would be due to food and petrol price falls last year dropping out of the data, rather than to new inflation. Indeed, producer price data could show inflation falling thanks to weak commodity prices and faltering worldwide manufacturing activity.
Low inflation means that real wages are rising. This should be reflected in Thursday's data, which should show retail sales volumes up by around 0.6 per cent in the third quarter. This means consumer spending is driving what little GDP growth there is.
Finally, watch out for Wednesday’s figures from the US Treasury. These have recently shown foreign buying of US equities, after months of selling. This suggests that positive sentiment returned to the stock market in the summer. If this continues, it is a worrying sign as it has in the past been a lead indicator of falling prices.
