Five things to look out for this week in world economics

This week in economics look out for US GDP figures, index of services and US consumer surveys

Hamish McRae
Sunday 23 October 2016 17:34 BST
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US GDP figures are set to be released this week
US GDP figures are set to be released this week

This will be a week dominated by economics – on both sides of the Atlantic. The reason is that both the UK and the US will have a set of third-quarter GDP figures, the first since the referendum vote in the UK, and the last before the presidential vote in the US. Insofar as people allow their wallets and purses to shape their political ideas, expect a politicised response to each, for even if voters rise about the economic numbers (or maybe simply don’t believe them) politicians think they do.

“It’s the economy, stupid,” was the phrase coined by James Carville, campaign strategist for Bill Clinton in 1992. It may or may not have worked, but politicians the world over think it did, and Bill Clinton did win.

Here in the UK this issue is whether Brexit is hitting the economy. On Thursday the Office for National Statistics gives the first official verdict as to whether the economy has slowed since the vote. It will have done so. In the second quarter growth was 0.7 per cent, an annual rate of a bit under 3 per cent. In the third quarter it is expected to be 0.3 per cent or 0.4 per cent – anything slower or faster would be a big story – so an annual rate of well under 2 per cent.

This news will be greeted either as evidence that the economy is so far weathering the Brexit blow well, or, depending on your approach to such matters, that the expected slow-down has already begun. Actually, since initial GDP figures are invariably revised, often for several years, you should take these ones with a pinch of salt. Actually I will be more interested in the index of services, also published by the ONS on Thursday, which give a more timely indication of what is happening to the service sector of the economy, which makes up no less than 79 per cent of the total. These will be reasonably strong, but face a squeeze in the months ahead.

The US GDP figures should show a bit of a pick-up since the summer, when growth was running at an annual rate of only 1.4 per cent (Americans express the quarterly numbers at an annual rate, whereas we quote them at the quarterly rate). But even if we assume they pick up to, say, 2.25 per cent, this will merely convince people who argue that this is the weakest recovery since the Second World War, and that this is in some measure the fault of government. It’s the “recovery for Wall Street, not Main Street” charge, and it is difficult to rebut it because until recently it has indeed been a recovery in asset prices rather than wages. This year living standards have at last started to move strongly forward. That’s an achievement, says President Obama; about time too say his critics.

There’s a further issue here. People may technically be richer but many don’t feel it, and there are a couple of US consumer surveys out this week that may show that confidence is still weak. On Tuesday the Conference Board publishes some numbers and these are expected to fall back from September, and on Friday there are the University of Michigan’s consumer sentiment figures.

I don’t think any of this information will have a material impact on the election. Nor are the data likely to change the picture for the Federal Reserve, now expected to increase interest rates again in December – an interesting contrast, by the way, to the picture in the UK and Europe. But they will tell us something about the economy that the next President will inherit: growing slowly but unevenly both in terms of geography and income levels, and sharply divided as to what should be done about it.

Of the rest, well, there will be a lot of European data, including inflation in Germany, France and Spain, and GDP in France and Spain too. But the area that excites me more will be anything to do with Apple, because they will tell us more about high-tech America. The company has benefited from the travails of Samsung, but that will be a short-term boost and profits are expected to fall for the first time for several years. That would not be a disaster, but more widespread weakness in high-tech industries would.

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