The week ahead 02 May 2023 - The US economy hits a pothole
What to watch out for in the UK economy and property market this week.
Last week saw a sharper than expected slowdown for the US economy, as annualised Q1 GDP growth sank to 1.1%, which was below forecasts of 2.0%. This was due to a downwards revision for the retail sales figures, plus inventories fell by more than anticipated. Similarly, the Eurozone GDP grew by a tepid 0.1% q-on-q, but this marginal increase makes a technical recession look increasingly unlikely. However, we still expect the US Federal Reserve, ECB and Bank of England to all hike rates in May in the face of sticky inflation. One thing to note is how rapidly the outlook on interest rates in being rewritten. There are now some predicting a US interest rate cut by September – a forecast that would have been laughed out the room back in February.
Turning to property, a major UK banking group has updated its hybrid working policy to require at least two days a week in the office. The bank will also trial “compressed working” whereby staff can work their contracted hours over fewer days. This follows a large US bank asking directors to spend five days a week in the office. Recent experience is that attempts to get staff to return to the office have had mixed results, with London Underground data pointing to a marked recovery of mid-week commuting to office districts, but to around 80% of pre-pandemic levels. Also, Mondays and Fridays are relatively quiet. Nevertheless, it is interesting to note that so many employers want their staff to spend more time in the office.
This week sees inflation figures from the Euro Area, with recent data from France and Spain pointing to an increase at the headline level. Also, Germany will report retail sales data which is predicted to show a return to growth. This could provide the ECB with further evidence to support a rate increase at its next meeting. The US sees labour market numbers released, and we are forecasting a loss of momentum in job creation and a small increase in the unemployment rate, as higher interest rates act as a brake on the economy.
Things to watch for this week
Tuesday 2nd May
Germany Retail Sales, March
Previous: -1.3% m-on-m
Forecast: 0.4%
After February’s surprise negative figure, the consensus view is a return to growth in March. Lower inflation should have improved consumers’ spending power.
Euro Area Inflation, April
Previous: 6.9%
Forecast: 7.1%
Based on recent data from France and Spain, we believe Eurozone inflation ticked upwards in April, although the full year outlook is still for a steady decline.
Friday 5th May
US Non-Farm Payrolls, April
Previous: 236k
Forecast: 185k
With higher interest rates slowing the economy, we are forecasting job creation to have decelerated in April, leading to a rise in the unemployment rate.
