The world economy is growing amid signs that shortages are starting to ease, next week’s figures might show.
In the US, the ISM survey should report rising output and orders. It could also say that backlogs of orders are starting to decline and price pressures are easing a little. Both are still problems, but perhaps less so than in the autumn.
Friday’s labour market data should confirm that the economy is growing well, with perhaps around 500,000 net new jobs created in December and the unemployment rate falling to 4 per cent – although this will still be below the 3.5 per cent rate we saw before the pandemic. The figures could also show that annual wage inflation is levelling off at just under 5 per cent, which could be a sign that mismatches between vacancies and unemployment are starting to diminish.
Official figures from Germany could show a similar picture. They could show another rise in industrial production, after a big jump in October, in part because shortages of components such as computer chips are easing.
The same could be true across the UK and Europe. Final purchasing managers’ surveys should confirm the flash readings, which showed manufacturing output rising in both the UK and Europe as supply constraints ease.
It’s not all good news, though.
One problem is that purchasing managers will also report that the rapid spread of the Omicron variant is holding back growth in the service sector.
Also, Chinese purchasing managers are likely to say that manufacturing activity and demand are more or less flat. This, however, has a silver lining: such weakness is holding down raw materials prices, which should eventually help to damp down inflation in the west.
What’s more, Bank of England data will confirm that the post-lockdown upturn in demand has not been as strong as some had hoped even before Omicron struck. These will show that consumer borrowing has been flat in recent months and that households are still building up their balances, having done so considerably during 2020. There has not been a post-lockdown spending of built-up cash. The numbers will also show that companies are repaying debt and building up cash, in part because smaller firms accumulated big debts during the worst of the pandemic. That suggests we’re not seeing a boom in capital spending.
House prices, however, are still rising strongly; the Halifax is likely to report an annual rise of over 8 per cent. In part, this is due to a lack of supply; it is for this reason that Bank of England data might show mortgage approvals falling to a 17-month low. With real incomes falling and interest rates rising next year, it’s unlikely that such inflation will be sustained.
