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Next week's economics: May 11 - 15

Official figures will confirm that the recession has begun in Europe, and willl show some record falls in activity in the US.
May 6, 2020

The recession has officially started, next week’s numbers will show.

The Office for National Statistics (ONS) will say on Tuesday that GDP fell sharply in March, meaning that it fell in the first quarter as a whole. With April likely to see an even bigger drop GDP will also fall in the second quarter, fulfilling the technical definition of recession.

The expenditure breakdown will show that consumer spending and business investment both fell sharply, while public spending rose a little. Net trade is likely also to have subtracted from GDP, but the main feature here will be that both exports and imports fell.

The eurozone’s recession has also officially begun. Eurostat’s first estimate of Q1 GDP will show that it too fell, perhaps by even more than the UK’s because Italy’s lockdown began earlier. Consistent with this, official figures will also show that industrial production in the region collapsed in March and an even bigger fall is likely in April.

In the US, we’ll get official data on retail sales and industrial production for April. Both are likely to show record drops: March’s 5.4 per cent fall in industrial production was the biggest since 1946 and April's will be worse. The falls are likely to wipe out a decade of growth in retail sales, and two decades of growth in industrial production.

Worryingly, firms aren’t expecting a rapid rebound. The New York Fed’s survey of manufacturers in its region will show not just that current activity is at a record low, but also that firms’ expectations for future conditions are as bad as they were at the trough of the 2008-09 crisis.

That’s not the only troubling lead indicator we’ll get next week. The People’s Bank of China could show that the narrow money stock has grown only very slightly in the past 12 months. In normal times, this would be a good predictor of falling output. While China’s own lockdown is being lifted, the economy will suffer from a loss of demand in western economies.

Also, figures from the US Treasury could show that foreigners resumed their buying of US equities in recent months. Ordinarily, this would be a predictor of lower returns on equities over the next 12 months – although buying has not been so high as to signal irrational exuberance and falling prices.

Amid all this gloom, there will be one piece of good news – that US inflation has fallen. The headline Consumer Price Index (CPI) rate is likely to go below 1 per cent, and the rate excluding food and energy below 2 per cent. Of course, with a lot of spending not happening, some of these prices are only hypothetical. But this does mean the Fed can fully focus on protecting the economy without – for now – worrying about inflation.