Next week could bring signs of an upturn in manufacturing. Thursday’s CBI survey should show that companies now expect slight growth in output in coming months thanks to a pick-up in orders, albeit from a low level. And Friday’s flash purchasing managers’ surveys could show that both manufacturing and services have returned to growth.
Eurozone data might also show an improvement. Although purchasing managers might report that manufacturing activity is still falling, it is doing so at its slowest pace for 12 months while the service sector is expanding. Better still, the National Bank of Belgium might say that business confidence is at a 10-month high, while Germany’s ZEW survey could show that optimism among finance professionals, while hit by China’s coronavirus outbreak, is still well above last year’s lows.
It’s not all good news, though. Official figures on Thursday could show that although retail sales volumes rose a little in January, they are still significantly down since the summer. And Tuesday’s numbers could show that unemployment has stopped falling. At around 1.3m (3.8 per cent of the workforce) it is little changed since the spring. And there are another 1.8m people outside the workforce who want a job.
Flat unemployment, though, is consistent with a small increase in hours worked in the final quarter of last year – which would imply that labour productivity fell then.
Falling productivity and high unemployment will explain another feature of Tuesday’s data – falling annual wage growth. This is likely to have been around 3.1 per cent in the fourth quarter, a significant drop from the 3.9 per cent peak in July.
There will also be other signs that inflation is no danger. Although CPI inflation might have edged up in January to around 1.4 per cent, it is still way below its 2 per cent target. And producer price data could show that both input and output prices have fallen in the last 12 months. All of this would be before the latest drop in oil prices fully affects the numbers.
In the US, the New York Fed’s survey should show that both current and expected trading conditions are around their long-term averages, consistent with the economy growing at a steady pace.
Perhaps the most important news for equity investors, though, will come in Tuesday’s capital flows data from the US Treasury. These should show that foreign investors have been net sellers of US shares in the last 12 months, albeit at a slower pace than a few months ago. This means that one of the strongest lead indicators of annual equity returns is still sending a bullish signal, although less so than last year.
