Next week could bring evidence of a global slowdown.
In the US, official figures could show that annualised real GDP growth slowed to around 1.5 per cent in the third quarter, after 2 per cent growth in the second. And the Institute for Supply Management (ISM) might well confirm that the manufacturing sector is now shrinking. The eurozone is doing even worse: GDP there might have grown by only 0.1 per cent in the third quarter. And in Japan, although industrial production figures should show a rise in September, output in the third quarter as a whole might be almost 1 per cent down from the second quarter.
The UK is sharing in this malaise. Purchasing managers will say on Friday that manufacturing activity is still in decline, while the CBI on Monday is likely to report weak retail sales (although recently their readings have been much weaker than official data). And the housing market is still in the doldrums. The Nationwide is likely to report that prices barely rose at all in the last 12 months, and the Bank of England will say that mortgage approvals have flatlined for the last 18 months.
It won’t all be doom and gloom, though. Friday’s US employment report should show that more than 100,000 net new jobs were created in October, and Tuesday’s S&P data should show that house prices have risen by around 3 per cent since January. Thanks to this, the Conference Board is likely to say on Tuesday that consumer confidence is still very high, albeit slightly off its summer peak.
We should see reasons for optimism elsewhere, too. In China, purchasing managers might report the strongest expansion in manufacturing for 18 months. And the ECB could report that growth in the M1 measure of the money stock has accelerated to well over 8 per cent. This matters, as for years it has been an excellent lead indicator of output growth, and so supports the ECB’s forecast that the region will escape recession.
On Wednesday, the Fed might well cut interest rates yet again – in effect, taking out insurance against the possibility of a recession. It can afford to do so. Friday’s data is likely to show that wage growth has fallen since the winter despite unemployment being at a 51-year low. This means the Fed need not worry about inflation and so can focus on boosting growth.
