We should get some early clues next week about how much economic damage the coronavirus is doing. Purchasing managers in China could report that the virus has reversed the weak upturn in manufacturing activity, and that this is now falling. Surprisingly, though, this is not having a knock-on effect on the eurozone. Purchasing managers there are expected to confirm flash surveys, which showed that the pace of decline in manufacturing slowed in February to an eight-month low. Thanks to this improvement and the decline in political uncertainty, purchasing managers in the UK should confirm that UK manufacturing is now growing.
The services sector is doing slightly better. Purchasing managers should confirm flash surveys which showed that it is expanding in both the eurozone and UK. Official eurozone data should confirm this. They should show that retail sales volumes bounced back in January after a surprise drop in December, to stand around 2 per cent higher than in January 2019. These numbers, however, pre-date the disruption to the Italian economy caused by the coronavirus.
In the US, the ISM survey might show that manufacturing is growing only slightly. The wider economy, though, is still doing OK. Friday’s labour market report could show that almost 200,000 net new jobs were created last month, helping keep the unemployment rate near a 52-year low of 3.6 per cent. Despite this, annual wage growth is actually falling. It is likely to be around 3.1 per cent, slightly down from the rates seen in the middle of last year. One reason (of several) for this could be that the labour market is not as tight as the unemployment rate suggests. The ratio of employment to population is still well below its pre-crisis and 1990s levels, and is comparable to what we saw in the mid-80s.
In the UK, we could see a disappointment. Purchasing managers might report that while construction activity has stopped falling, it is not expanding much either. This should remind us that there have been many obstacles other than political uncertainty to investment in longer-lived assets. Consistent with this, the Bank of England is expected to report that growth in bank lending to companies – and especially to smaller ones – is still weak.
We might, however, see signs of a recovery in the housing market. The RICS survey could report a pick-up in sales and prices. The Halifax should say that while house price inflation dipped a little this month, it is nevertheless well above mid-2019 rates. And the Bank of England could report another rise in mortgage approvals, perhaps to their highest level since July 2017.
