Next week’s numbers will show that the world economy is recovering, but is a long way from being fully healed.
In the US, the Conference Board could report that consumer confidence, while up from its lockdown lows, is still well below its pre-pandemic levels. This reflects the fact that both unemployment and cases of Covid-19 are still high. Also, durable good orders might be flat after a 24 per cent rise in the past two months. This reflects the fact that some of that rise was a one-off release of pent-up demand created by the lockdown, and that uncertainty about the pandemic – plus the spare capacity created by the lockdown – are depressing capital spending.
Much the same is probably true in the eurozone, where the National Bank of Belgium is likely to say that while business confidence is recovering from its lockdown lows, it is still below pre-pandemic levels.
Thursday’s money stock data from the European Central Bank (ECB) will be important but hard to interpret. The good news will be that annual growth in the M1 measure of the money stock has accelerated in recent months, to almost 13 per cent. In the past, such growth has been a good lead indicator of faster output growth. However, bank lending to companies has levelled off, having risen during the lockdown. This has an optimistic interpretation: the post-lockdown upturn is enabling some firms to pay down debts. But it also has a pessimistic one: firms are reluctant to borrow to expand, and banks are loath to lend. Such ambiguity is a warning that we cannot be confident that the economy is out of the woods yet.
In the UK, the CBI is likely to report that retail sales were weak in the first half of August. Falling employment and wages are offsetting the benefit to retailers of high pent-up demand.
There might though be better news – at least for home-owners – in the Nationwide’s report on house prices, which could show a second successive rise. This might, however, owe more to the cut in stamp duty than to fundamentals. Falling employment and huge uncertainty about the future are rarely recipes for a strong market.
