Consumer Confidence and Construction up in May ...

Consumer Confidence rallied in May. The GfK Consumer Confidence Survey jumped 2 points in the month. Households were more confident about their personal financial situation over the next twelve months. Spending plans were lifted despite some uncertainty about the economy in the year ahead.

Joe Staton, Head of Market Dynamics at GfK, said:
“We have an unexpected uptick in the barometer this month as consumers report increased confidence in their personal financial situation, the wider economy, and future plans for shopping and saving. Despite life becoming more expensive and wages dropping in real terms for the first time in three years, stagnant living standards haven’t yet significantly dented consumers’ spirits."

The PMI Markit surveys for Manufacturing and Construction were released this week. Manufacturing activity demonstrated further growth this month. The headline index moved to 56.7 slightly down from the April high, strong demand in the UK and export markets provided the foundation. Construction activity bounced back to a seventeenth month high. Housing outperformed. The headline construction index jumped to 56.0 from 53.1 prior month. 

Most economists expect activity to slow this year as inflation increases and incomes remain static. Some belong to the "Vera Lynn School of economic thought". "Recession again, don't know where, don't know when ...". Most aren't even sure why! Consumer confidence so far into the year remains strong, despite uncertainty about the election and Brexit. Output in manufacturing and construction remains high. The data on the service sector is due to be released next week. We expect a similar strong performance.

Housing Market ... no slump in prospect ...
Mortgage activity eased slightly in April according to the latest Bank of England data. Is this the prelude to a slump? Not really! Analysis suggests it's business as usual in a market adjusting to affordability. Prices have risen rapidly over the past three years. Sooner or later, market reality will impact on levels of activity and prices.

Mortgage approvals fell by 2.3% compared to April prior year. For the year, as a whole we expect the volume of activity to slow from 800,000 last year to just 785,000 this year. 

Prices slowed according to the Nationwide House Price Index. Prices increased by just 2.1% in the month compared to increases of 14% just three years ago. A glance at the Nationwide affordability explains why. The price to earnings ratio remains steady at 6.0. It peaked at 6.5 in 2007. The long run average is more like 4.5. House prices are high compared to current earnings. No slump in prospect. The market is adjusting to the reality of affordability.

Housing starts and completions are set to hit 200,000 this year. The government target of 250,000 units will remain elusive. Completions in 2016 were just 179,000. The market performance this year represents an increase of 12%. Housing starts last year were 195,000. Private sector housing construction is set to increase by 5% this year from £27.2 billion in 2016 to £28.5 billion. Public sector housing is set to increase by 4.5% to a level of £4.5 billion. No slump in prospect. We still expect the economy to grow by between 2.0% and 2.4% this year.

The week in markets ...
Markets were confused this week. The Dow closed up as the FTSE ended unchanged. Sterling held against the Dollar, both slipped against the Euro. Oil fell and Gold rallied. Amazon closed above $1,000 dollars, Google looks set to follow, Alphabet closed at $996.12.

US job growth slowed to 138,000 in May as the unemployment rate fell to 4.3%. The Fed is set to make the move to hike rates this month. The market is now more unsure about two further increases this year.
John
That's all for this week. Our Economics Forecasts for May will be released at the end of next week. This follows the second estimate of GDP last week. Slight delay but ...

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