Is the post-lockdown rise in consumer spending already running out of steam? We’ll get a clue in next Friday’s official retail sales numbers. These could show that although sales volumes rose in July they are below April’s levels. Granted, this excludes spending on things like some home improvements, pubs, restaurants and cars (though sales of the latter are also down), but it might suggest that the savings we built up during the pandemic are not being run down as much as expected.
The counterpart to private sector savings staying high is that government borrowing will stay high. Friday’s figures will show that the government has borrowed around £80bn so far this financial year. Though well down on the £139.7bn the government borrowed in the same period last year, this is still very high by normal standards.
We should, though, see another drop in unemployment next week. Tuesday’s numbers could show that the official unemployment count has fallen below 1.6 million, or 4.7 per cent of the workforce. However, there are also 1.8 million people outside the labour force who want a job, and the rate is expected to climb when the furlough scheme ends.
Those labour market figures will also show huge wage inflation, with average weekly pay up by around 8.5 per cent in the latest three months compared to the same period in 2020. This, however, tells us that people were on short hours a year and so had meagre weekly pay. Average wages are only around 1 per cent up so far this year, so there isn’t a generalised wage boom.
Price inflation numbers might also be reassuring. Wednesday’s numbers should show little change in either consumer price inflation (from last month’s 2.5 per cent) or producer price inflation. This will, though, be a temporary lull. CPI inflation will jump next month as last year’s cut in VAT on hospitality trades falls out of the numbers.
In the US, official data should show that retail sales rose slightly in July. This would leave them little changed since March, suggesting that the fiscal stimulus cheques have not greatly boosted spending – which is consistent with what orthodox economic theory predicts about the effect of a one-off fiscal easing.
We should also see a rise in industrial production, although this would mean output is still some 3 per cent below its 2018 peak. The Philadelphia Fed’s survey could show that trading conditions and companies’ expectations have both eased since the spring, suggesting that growth is returning to normal. Which might be one reason why bond yields have fallen since April.