Next week might bring signs that the post-lockdown recovery is losing steam.
The CBI is likely to say that retail sales were down year-on-year in early August, and are still below normal despite the releasing of pent-up demand. Its manufacturing survey could also be downbeat, with firms reporting weak order books and expecting output to fall in coming months, albeit by much less than a few months ago.
Consumers might also be gloomy. GfK is likely to say that consumer confidence has flatlined recently at only slightly higher levels than during the lockdown.
Purchasing managers might paint a cheerier picture, however, with flash surveys showing indices of manufacturing and services both quite high. This, though, is not as good as it seems: such numbers are consistent with many businesses suffering falling activity despite the easing of the lockdown.
The same will be true of these surveys in the eurozone, with the services sector in particular showing only weak growth. This will be confirmed by Germany’s Ifo survey, which will report manufacturers still operating well below normal levels.
We should, however, get signs of optimism here too. The Ifo survey should show that firms’ expectations for future output have recovered to around long-term average levels – which should be corroborated by the National Bank of Belgium’s measure of business confidence also returning to such levels.
Also, the ECB should report that annual growth in the M1 measure of the money stock has accelerated recently, to around 14 per cent. In the past, this has been a good lead indicator of recoveries in industrial production.
The US could also show signs of output leveling off. Durable goods orders could show only a slight increase, having jumped sharply post-lockdown.
One effect of the deep recession will be evident in Monday’s figures. These will show that public sector net borrowing was around £170bn in April-August, equivalent to over 20 per cent of GDP which is a peacetime record.
Few serious people see this as an immediate problem, however. For one thing, debt interest payments are still low. At less than 3 per cent in the past 12 months they are well below what we saw in the 1980s and 1990s. And for another, government borrowing is the counterpart to private sector saving which was greatly boosted by the closing of shops and pubs in the spring. As the economy returns to normal, so the private sector surplus will decline and with it government borrowing. And if the economy doesn’t return to normal, that will be our problem, not the public finances.
