Next week should bring evidence of a US economic upturn.
Official figures should show that real GDP rose at an annualised rate of just over 4 per cent in the first quarter, despite the impact of severe winter storms. Although this would still leave economic activity below pre-pandemic levels, further growth is likely this quarter. This will be hinted at by durable goods orders, which should post a rise, and by the Conference Board’s measure of consumer confidence. It could show a second successive large rise, thanks to people receiving their stimulus cheques.
The Fed is supporting the recovery. It will repeat next week its intention to keep the fed funds rate near zero until consumer price inflation looks like staying above 2 per cent “for some time”. Such loose money is already fuelling asset price inflation. S&P is likely to say next week that house prices have risen by over 11 per cent in the last 12 months, the fastest rise for seven years.
We’ll also see signs next week of whether the eurozone is sharing in this upturn. Last month, Germany’s Ifo survey and the National Bank of Belgium’s survey of business confidence both posted good rises. We’ll find out next week if this uptrend has survived the third wave of Covid cases.
There will, though, be one good sign. The ECB is likely to say that the narrow money stock, M1, has risen by around 16.5 per cent in the last 12 months. Although this means its growth has stopped accelerating, its increase is fast enough to point to a strong upturn in output in the next few months: historically, M1 growth has been a great lead indicator of industrial production growth.
We will, however, also see a pick up in inflation in the region. The headline inflation rate might rise to almost 2 per cent, close to the ECB’s target. This is largely due to last April’s oil price fall dropping out of the annual numbers rather than to new inflationary pressures. The core rate is likely to remain only a little above 1 per cent.
At the same time, official figures will show that the unemployment rate in the region is unchanged at 8.3 per cent. If inflation is a threat when the jobless rate is that high, it’s a sign of a structurally dysfunctional economy, not of excess demand.
In the UK, the only news of note should be Nationwide’s house price report. It could show prices rising, thanks in part to the extension of the stamp duty holiday.
