Next week’s numbers could show that the coronavirus is so far having little effect on the US economy. Official figures could show small rises in both retail sales and industrial production in February. And surveys of manufacturers by the New York and Philadelphia Feds could confirm that growth is holding up at a steady pace.
However, those same surveys might also show a drop in expected activity, largely due to fears that the virus will both hit US exports and spread more within the US.
Such fears are likely to be more intense in the eurozone, however. Germany’s ZEW survey could show a sharp drop in optimism among finance professionals, in part because Germany is more exposed than other European economies to weaker demand from China, but also as a knock-on effect of the closure of some Italian cities.
In the UK, labour market data is likely to show that unemployment has now levelled off, at just under 1.3m or 3.8 per cent of the workforce. We might also see that the numbers of those outside the labour market who want a job are now rising, to almost 1.9m.
Another measure of labour demand – total hours worked – might, however, show a slight increase. Given that GDP also rose only slightly in the three months to January, this would mean that productivity has actually fallen slightly in the last 12 months.
This combination of excess labour supply and flat productivity explains another fact we’ll see in Tuesday’s figures – that wage inflation has fallen. It’s likely to have been around 3 per cent in the year to the three months ending in January, compared with 4 per cent in the second quarter of last year. This means real incomes were rising only slightly even before the impact of the coronavirus.
We’ll see another impact of the weak economy in Friday’s public finance numbers. These should show that net borrowing exceeded £45bn (just over 2 per cent of GDP) in the first 11 months of the financial year. With the government’s borrowing costs now sharply negative in real terms, however, this is quite sustainable.
Finally, we should get an important lead indicator for annual equity returns on Monday, with the US Treasury’s data on capital flows. These could show that net foreign buying of US equities increased in recent months. This is a sign of improved investor sentiment, which is a sign of lower future returns. The indicator is still bullish, but not as much so as a few months ago.
