We’ll get more idea next week of how much President Biden’s stimulus is boosting demand.
Friday’s figures are likely to show a rise in personal spending in April as the cheques which arrived in March are spent. Not all of them will be, though: the numbers will also show that while the savings ratio dropped from its near-record 27.6 per cent last month it remains far above its long-term average. Some of the stimulus cheques are being used to pay down debts instead.
Nevertheless, the stimulus has improved consumer confidence. The Conference Board might say on Tuesday that this has risen to close to its highest level since 2000.
The stimulus, plus low interest rates, is also boosting the housing market. Official figures could show that around one million new homes were sold last month. That’s close to the highest since 2006. And the S&P could report that house prices rose over 12 per cent in the last 12 months, the fastest rise since 2013.
It’s not just the US that’s enjoying an upturn, however. Japanese data should show that industrial production in the country has grown over 5 per cent since December. In Germany, Ifo’s survey should show improvements in economic activity and in firms’ expectations. And the National Bank of Belgium could report that business confidence has risen to a ten-year high. This suggests the eurozone is at last sharing in the global upturn.
The response of equities to all this is, however, unclear. Whilst the upturn should boost earnings expectations and appetite for risk, these could be cancelled out if markets start to fear that it will lead to higher interest rates.
In the UK, the CBI’s report on retail sales in May will be important, as it will give us a clue on whether the jump in sales in April as shops re-opened was a one-off or whether there’ll be a sustained upturn in spending.
One area of strength, however, is the housing market. The Nationwide could report that annual house price inflation has risen to over 9 per cent, its highest rate since 2014. This is partly due to an ongoing release of pent-up demand created by the lockdown. But it’s also helped by the stamp duty holiday, help-to-buy schemes and the government’s mortgage guarantee. Which poses the question: if the housing market is fundamentally healthy, why does it need so much government support?
