Next week’s economy from October 11 to 15

The UK and Eurozone economies are slowing down a bit, as next week’s numbers might show.

On Wednesday, the ONS is expected to report that GDP increased slightly in August. While this would put the economy on track to grow more than 1 percent in the third quarter, it would suggest that the expansion has slowed in the past two months. This is partly due to the shortage of some materials and personnel, but also because the increase in consumer spending after the lockdown appears to have been smaller than some had hoped.

We should also see a slight drop in unemployment next week, to around 1.5 million or 4.5% of the labor force. This is some 200,000 more than before the pandemic. A broader measure of unemployment – which also counts people outside the labor force seeking employment – will, however, be near its pre-pandemic low. The total number of hours worked, however, will always be below its pre-pandemic levels, suggesting that aggregate demand for labor is still depressed.

However, the GDP and unemployment figures refer to periods before the end of the holiday scheme, the rise in gas prices and the reduction in universal credit, which could reduce economic activity.

The ONS will also signal a slowdown in annual earnings growth. This is simply because weekly wages increased last August as hours increased after the lockdown. The numbers could also show that wages so far this year have actually risen less than inflation.

The eurozone could also see signs of slowing growth. Official figures may show only a small increase in industrial production in August, leaving it barely above April’s level, and the ZEW survey of financial professionals may show further decline in optimism . Both will be partly due to shortages of materials (like car chips) that are holding back production.

In the US, we might see mixed news on activity. The New York Fed survey is expected to show increased production and orders and high optimism. But retail sales could post only a modest increase in September, leaving them weaker than in March and April.

We will also have mixed news on US inflation. This New York Fed survey could show that companies are still reporting sharp increases in the cost of materials. And Wednesday’s CPI data could show headline inflation stuck at around 5.3%. In contrast, the CPI inflation rate excluding food and energy is expected to be down to around 4% from 4.5% in May, and monthly price increases are moderating. The inflation debate will therefore boom.

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