The world economy is recovering, but it is far from fully healed, next week’s numbers will show.
In the US, Monday’s ISM survey should say that manufacturing output and orders are both growing nicely. However, Friday’s labour market numbers will show that while employment rose in October, the jobless rate is still more than twice its pre-pandemic level, at over 7 per cent.
In Germany, official numbers should show that industrial production rose slightly in September, but it is still more than 10 per cent below its pre-pandemic level – which itself was lower than in 2017. And final purchasing managers’ surveys for the eurozone as a whole should confirm that the services sector is contracting again.
Things might look slightly better in the UK, where purchasing managers should confirm that services, construction and manufacturing are all expanding. However, the rates of growth will be slightly lower than in recent months, as localised lockdowns hit activity.
The picture in China might be cheerier, though, with purchasing managers reporting that manufacturing activity is growing at close to a 10-year high – a picture consistent with the recent rises in prices of several commodities.
We’ll see next week how the Fed is responding to the crisis. It should repeat its promise to keep interest rates close to zero until inflation is consistently above 2 per cent. Many believe this means no rise in rates until at least 2024.
The same is true in the UK. In next week’s monetary policy report the Bank of England is likely to predict rising activity and inflation next year, but also that unemployment will stay well above pre-pandemic levels until at least 2022. Against this background, a rate rise is unlikely for a long time.
One exception to this lacklustre picture is the UK housing market. The Halifax could report next week that prices are almost 8 per cent higher than a year ago, reflecting the stamp duty holiday and the release of pent-up demand. It might also reflect a bias in the price measure. In areas where demand is weak, sellers are slow to cut prices and so their houses don’t sell – which means they don’t feature in the index.
Such an increase is, however, unsustainable. The ending of the stamp duty holiday and the fact of rising unemployment and weak income growth will reduce price inflation soon.
