Newspapers call August the silly season because not a lot happens. That’s not always the case, as events in Afghanistan have shown, but it is certainly true of the UK economy this year. And that’s bad news.
Each week the Office for National Statistics puts together a digest of the very latest data, everything from restaurant bookings to the number of cars on the road. To be clear, these are not official figures, but they do provide a reasonably good guide to what’s going on.
The message in the latest data was clear. The recovery is losing momentum. Card payments: flat. The number of seated diners: flat. Retail footfall: down slightly. Ship visits to the UK: down slightly. Daily flights: up a bit.
Supply chain problems are part of the story, with 7% of UK firms reporting difficulties obtaining raw materials, products or services in the past week. That figure rises to 15% for construction, the worst affected sector.
The slowdown looks to be more than simply a supply chain issue though. It is hard to explain why a shortage of parts or raw materials would affect the number of people browsing in their local high street or booking a meal out.
There are a couple of possible explanations for the levelling off in demand. One is that people are going out less because they have been pinged. A second is that unpinged consumers are becoming more cautious because of the rising number of newcoronavirus cases.
The second explanation would be the more serious, because it would suggest the economy is at best moving sideways heading into the autumn and will take longer than expected to return to its pre-crisis level of activity.
It is not simply that forecasts for growth in the third quarter will be revised down, although that looks increasingly likely.
Rather, it is the implications of weaker demand for the 7% of workers – between 1.6 million and 2 million people – still on the government’s furlough scheme. The number of people receiving wage subsidies has also stopped coming down, which is a real concern given that the scheme will end in little more than a month’s time.
Growth sectors push US shares to new highs
US share prices hit a new peak this week in advance of the Jackson Hole speech by Jerome Powell, with the S&P 500 breaching the 4,500 level during trading for the first time.
In a sense, this was a bit of a non-event, because the S&P has broken its closing record 51 times this year. Against that backdrop, the odds are that the markets will be disappointed whatever the Federal Reserve chairman comes up with, no matter how bland his remarks prove to be.
There is a bigger story here, though, which is that US share prices have consistently outperformed those in the rest of the world over a prolonged period. To take one example, the S&P has trebled while London’s FTSE 100 has risen by less than 5% since the turn of the millennium.
The disparity seems curious because while the US economy has grown a bit more quickly than those of other developed nations, the difference has not been all that marked, and certainly nowhere near as marked as the performance of stock markets would suggest. Share prices in the US are up 235% in the past 10 years, while in the rest of the world they have risen by 25%.
Dhaval Joshi, an analyst at BCA Research, says a key reason is that US companies’ profits have been a lot higher than elsewhere. In the past decade, US profits are up 93%, while non-US profits have actually fallen by 9%.
Why? Because the US stock market is overweight in growth sectors such as technology and healthcare, while non-US markets are top-heavy with old economy sectors such as banking, energy and resources.
Current trends suggest the US market may continue to outperform, Joshi says. The pandemic has accelerated the digital revolution through working and shopping from home, to the benefit of tech companies. The decarbonisation of economies is also going to weigh heavily on markets that depend heavily on fossil fuel companies. The FTSE 100 is a prime example of that.
