Next week should see signs of continued recovery.
In the US, the ISM should say that manufacturing activity is recovering nicely, while official data on Friday are expected to show another large rise in jobs and fall in unemployment. The headline jobless rate, however, at around 6.5 per cent, will still be way above its pre-pandemic low of 3.5 per cent.
The eurozone should also see evidence of an upturn. Official data should show that industrial production rose a little in France, Germany and Italy in November – although it is still below pre-pandemic peaks – while final purchasing managers’ surveys should confirm that the expansion continued into December. Those same surveys will, however, confirm that the services sector contracted this month.
What’s more, official figures should show that retail sales in November remained around October’s record high, and are some 3 per cent up on a year ago.
A strong lead indicator should point to this upturn continuing. The ECB is likely to say that the M1 measure of the money stock has grown by around 14 per cent in the last 12 months. Historically, this has led to strong output growth a few months later.
This upturn isn’t yet causing inflation. Official figures should show that annual CPI inflation in the region is blow zero. The rate excluding food and energy should be around 0.5 per cent, compared with over 1 per cent before the pandemic.
In the UK, however, things might be more downbeat. Purchasing managers are likely to confirm that the services sector is shrinking despite the lifting of the national lockdown and that manufacturing is growing only slightly – in part because delays at ports are disrupting supply chains.
Money stock data from the Bank of England might, however, be encouraging. These are likely to show that households repaid credit card debt in November and that their bank deposits in the last 12 months have grown more than 8 per cent – the biggest increase since 2007. This suggests that those of us who will keep our jobs have the finances to raise spending a lot next year.
Company finances, however, are more mixed. The aggregate data will show a drop in bank lending and rise in cash holdings. But this disguises a big difference between larger companies who are repaying debt and smaller ones who are accumulating it to see themselves through the lockdowns. Benign aggregate data hide the fact that many companies are in big trouble.
