The UK housing market also remains subdued. September’s survey by the Royal Institution of Chartered Surveyors (RICS) revealed the continuation of three broad trends in the housing market. First, a net 23% of respondents expect prices to fall over the next quarter. Second, activity remains lacklustre as newly agreed sales fell slightly. Lastly, regional differences continue. Of the 11 regions, only London recorded an increase in prices over the past three months.
As the G20 finance ministers met in Paris this weekend, news on the global economy improved a bit; at least by recent standards. The trade deficits of the UK, the Eurozone and the US narrowed, suggesting that export growth could at least partly offset weak domestic demand. In addition, US consumers have rediscovered their appetite for spending. While it may be necessary for the US to become less reliant on household spending in the future, it’s a welcome short-term boost. Things look less rosy for UK households. The number of jobs is falling and unemployment is rising – hardly the best ingredients to encourage spending.
It was not a great summer for the UK labour market. Almost 178,000 jobs were lost in three months to August and the unemployment rate rose from 7.9% to 8.1%. Rather gloomily, the unemployment rate for those aged 16-24 has passed 21%, the highest rate since records began in 1992. While figures like these would usually suggest an economy already in recession, the number of job vacancies rose slightly, as did the number of hours worked. Productivity is also growing again. In addition, wage growth, despite remaining below the rate of inflation, is at least consistently stronger than it was this time last year, so the income squeeze may, at last, be moderating.
UK industrial production continues to fall. The index of industrial production fell by 1%y/y in August, after also falling by 0.9%y/y in July. The decline was higher than expected, adding to the evidence that the recovery slowed down in Q3. That said, the National Institute of Economic and Social Research (NIESR) estimates that UK output grew by 0.5% in the three months to September. If accurate, this is far greater than the 0.1% rise in output in Q2. However, it would also mean that the UK economy is still only 0.5% larger than this time last year and remains 4% below its pre-recession peak.
The UK trade deficit continues to improve. The UK trade deficit for August fell for a third consecutive month with both goods and services exports rising. The deficit has now more than halved since August 2010. Moreover, revisions to data for earlier in the year show that the trade gap has been much narrower than previously feared. This is good news, but growth prospects have deteriorated, especially in the Eurozone and US, which are key markets for UK exporters.
Eurozone trade balance also improves. The first estimate of the Eurozone’s trade balance for August indicates the deficit is set to narrow to €1.0bn, down from July’s €3.7bn. Export growth of 4.7%m/m outpaced import growth of 2.7%m/m. While the improvement in export growth is a rare piece of positive news for the beleaguered region, it will take a lot more than this to fend off the prospect of another recession. Many of the peripheral economies remain uncompetitive, and weak demand is affecting the intra-Eurozone exports of the stronger economies.
The US trade deficit narrows – a triple whammy – but trade tensions escalate. As in the UK and the Eurozone, robust growth in exports decreased the trade deficit. Interestingly, there were signs that emerging market demand was a key contributor to this improved performance. Less welcome is the news that the US Senate recently passed a bill that would allow companies to seek duties to compensate for “misaligned” exchange rates, a thinly veiled shot across Chinese bows. While this is unlikely to pass into legislation, it reflects the sensitivity of the US (and other nations) to competitive exchange rates in a weak growth environment. It was ironic then, that China’s export machine slowed in September.
US consumers splash the cash in September. Retail and food services sales rose by 1.1% m/m in September, the largest monthly increase for six months. A surge in auto sales was the main reason for the increase in growth, though furniture, clothing and restaurants also stood out. As if that wasn’t enough, there were upward revisions to back data for July and August. Given that retail sales account for about a third of total demand, these data suggest that the Q3 GDP data – out next week (Oct 27th) – could look much stronger than originally expected (not saying much, admittedly). Against this backdrop, QE3 will have to remain on the slipway for now.