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Next week's economics: 28 Sep - 2 Oct

The world economy is recovering, but it is far from fully healed, next week's numbers will show
September 24, 2020

The world economy is recovering, but is still way short of full health, next week’s numbers will show

In the US, the ISM survey of manufacturing could hit a two-year high. This, though, is consistent with a large minority of companies not enjoying an upturn.

A better gauge of the state of the economy will come in Friday’s labour market report. This should show another big rise in employment, but also that the unemployment rate – at almost 8 per cent – is still almost twice its pre-pandemic level. Consistent with this, the Conference Board is likely to report that consumer confidence is well below its levels of earlier this year.

We’ll also get a reminder of how deep the US recession was. The BEA is likely to confirm on Wednesday that real gros domestic product (GDP) fell at an annualised rate of over 30 per cent in the second quarter, with domestic non-financial profits falling at an annualsed rate of around 50 per cent.

China should also report a recovery, with Markit’s purchasing managers index of manufacturing activity possibly hitting a nine-year high – although, as in the US, this will be consistent with lots of companies still struggling.

In Japan, official figures should show another big rise in industrial production, although it will remain well down from last year’s levels. 

In the UK, Tuesday’s national accounts data should confirm that real GDP fell by around 20 per cent in the second quarter with consumer and capital spending both slumping – some revision to the previous estimate of a 20.4 per cent drop is possible, though. More interesting will be the sectoral accounts. These will show that households became huge net savers as the lockdown closed shops and restaurants. This is why government borrowing has been so big: if one sector is a net saver another must be a net borrower.

Bank of England figures, though, will suggest that these net savings now are falling. They should show that consumer credit is rising again thanks to shops and restaurants reopening. Mortgage approvals might even hit their highest level since 2007 as pent-up demand is released. The figures could also show that companies paid down some debt as revenues rose post-lockdown.

Reflecting the reopening of the housing market, the Nationwide could report another rise in house prices. Whether this is sustainable in light of a big drop in employment is, however, questionable.

Watch out too for Wednesday’s figures on eurozone CPI inflation. These might show an increase from last month’s minus 0.2 per cent, but they’ll nevertheless confirm that inflation is simply not a problem.