Next week could bring evidence of a post-lockdown recovery in economic activity.
Having shocked everybody by showing increased employment last month, non-farm payrolls could post another rise as the economy reopens. Consistent with this, the ISM should report a recovery in manufacturing output and the Conference Board could say that consumer confidence is recovering. Unemployment, though, might still be twice its pre-lockdown level, which reminds us that there’s a long way to go before the economy fully heals.
There should also be signs of an upturn elsewhere. Official Japanese figures could show a rise in industrial production after big falls in the last two months. And purchasing managers in China should report a small increase in manufacturing activity.
There should also be signs of life in the UK economy. Purchasing managers should report that activity in services and manufacturing has picked up, albeit from very low levels. And GfK could report a rise in consumer confidence, also from a low base, as customers respond to an easing of the lockdown.
This upturn isn’t helping the housing market, however. The Nationwide could report another fall in house prices, leaving them only around 1 per cent higher than a year ago. This is a little artificial as there are so few transactions: Bank of England data will show that mortgage approvals are 80 per cent down from their pre-lockdown levels. But it raises the question: will high unemployment and the scarring effect of the recession cause lasting weakness in the housing market?
We’ll also get important figures on financial accounts on Monday. These will show that the UK ran a bigger external deficit in the first quarter (Q1), the counterpart to which is big government borrowing. The private sector, however – and especially households – is a net saver: the personal savings ratio is likely to have increased in Q1. And Bank of England figures are likely to point to a further rise in Q2 as households in aggregate reduced borrowing and increased cash savings. Those figures will also show a big rise in corporate borrowing as companies sought to tide themselves over during the lockdown.
In the eurozone, we might see deflation: it’s possible that Tuesday’s figures could show that consumer prices fell in the last 12 months. This would probably be only temporary – the effect of lower oil prices. Nevertheless, the 'core' rate (which excludes food and energy) will also be lower than in December and well below the European Central Bank’s target at around 1.1 per cent. This alone justifies loose monetary policy in the region.
