The world economy is recovering - some parts more than others, next week’s numbers will show.
In the US, official figures will show that industrial production rose last month. Although it remains below pre-pandemic levels, surveys by the New York and Philadelphia Feds will show that firms expect a further expansion in coming months.
We should see the same picture in the euro zone. Industrial production will have risen in July, but it is still lower than in February – which itself followed two years of stagnation. Germany’s ZEW survey of financial professionals, however, could be close to an 18-month high, pointing to a continued upturn in activity.
Retailers, though, are doing better. Official figures in the UK and US could show sales at a record high in August.
Whether this is sustainable is, however, doubtful. Some of it reflects the release of pent-up demand that had built up whilst shops were shut: for some goods, consumers regard online retail as an imperfect substitute for physical shops. Sales might not remain strong once this one-off spending dissipates.
UK labour market figures will give us cause for concern here. These are likely to show a big drop in employment since the pandemic started, despite the furlough scheme. This isn’t fully evident in jobless figures – which might show only a small rise – in part because many of those losing their jobs have been older people who retired or migrants who returned home. As the furlough scheme ends, however, we could see further job losses and rising unemployment.
These figures will also show that average weekly wages have fallen in the last 12 months, thanks to cuts in hours.
Falling employment and wages might well hold down consumer spending in coming months.
What is not a problem, however, is inflation. The ONS is likely to say that CPI inflation is around one per cent – well below its two per cent target. And whilst producer prices (both output and input) have risen in the last three months, they are still well down on a year ago. This points to no significant inflation being in the pipeline.
Partly because of this, the MPC will promise on Thursday to keep rates near zero for a long time. On Wednesday, the US Federal Reserve will say much the same thing.
Equity investors, might, however, get some bad news from the US Treasury. Its data could show big foreign buying of US equities in recent months. Historically, this has been a sign of excessive optimism and therefore a lead indicator of falling equity prices around the world.
