The UK economy is very weak, next week’s numbers will show. The CBI is likely to report that manufacturers’ order books are low and that firms expect output to fall in the next three months. And official figures will show that retail sales fell in January. Although they might not be much down on a year ago this is likely to be due in large part to a 60 per cent jump in online sales in this period.
We might, though, get good news about consumers from GfK’s survey, Although it will show that overall consumer confidence is depressed, this is largely due to expectations for the overall economy. Households are much more optimistic about their personal finances. As they are more knowledgeable about the latter, this might point to spending recovering well when the shops reopen.
One symptom of our weak economy will be evident in Friday’s public finance numbers. These could show that the usual big surplus in January didn’t occur this year, as tax revenues from the self-employed plummeted.
Another symptom is that inflation is low. Just how low is hard to predict as the pandemic is disrupting the usual seasonal patterns in prices. Ordinarily, January sees big discounting as retailers try to shift stock. But with clothing shops shut now, this didn’t happen. This means Wednesday’s numbers could show a rise in CPI inflation – although this would be only temporary.
Producer price numbers will remind us that there are no inflation pressures. They should show that output prices are falling and that input prices are little changed from a year ago.
In the US, on the other hand, things are looking up. Retail sales should rise a little in January after falling in the previous two months, while industrial production should continue its recovery. This would still leave output below pre-pandemic levels, but surveys by the New York and Philadelphia Feds should show that firms expect production to continue rising in the next few months. This matters, as investors need signs of strong growth to justify the big rise in global cyclical stocks we’ve seen in the last few months.
Other US numbers will show that sales of existing homes are more than 20 per cent up on a year ago. This will fuel fears that low interest rates are stoking up a housing bubble.
Watch out too for US capital flows numbers. These could show record foreign buying of US stocks. Historically, this has been a symptom of excessive optimism and hence a lead indicator of falls in world share prices. This relationship, however, might have broken down recently.
