MAGGIE PAGANO: The economy is at a crossroads

Translating the smoke signals wafting over Jackson Hole when central bankers meet for their annual shindig this week is going to be more perplexing than ever.

This time last year they were debating how much interest rates should rise to curb rampant inflation, setting the pace for a year in which the West pushed up the cost of borrowing to the highest levels since the 2008 Great Financial Crash.

A year is a long time. The mood has changed dramatically. This year, bankers are more concerned about how the conflicting cross-winds from around the globe – fuelled by fears of a slowdown and a property crash in China – are impacting growth. Only yesterday, the Chinese authorities cut rates again in a bid to restore activity.

Market traders will be taking their lead from Jay Powell, head of the Federal Reserve, who has been the most aggressive in pushing up rates.

He needs to be careful about the signals he sends out for fear of mixed messages. Often it is what he doesn’t say which gives the better clue to where rates are heading.

Market traders will be taking their lead from Jay Powell, head of the Federal Reserve, who has been the most aggressive in pushing up rates

Opinion is divided over whether central bankers have gone far enough to control core inflation. Interest rate doves like me argue that hikes have yet to work their way fully through to the weeds of the economy and that rises should be halted until their full impact is assessed. 

Inflation is falling fast. Energy and commodity prices are still on their way down. The danger is that further hikes would do more damage, tipping an already fragile world into recession.

Growth is faltering everywhere. The world’s biggest exporters of manufactured goods – China and Germany – have revealed dramatic falls in exports, suggesting a serious slump in manufacturing.

Analysis from economics consultancy Cebr shows that the ratio of US inventories to sales is now at 1.4 – its highest level since the lockdown, as the cost of holding inventory has risen with interest rates. It is not only China and Germany which are the dullards. The US manufacturing Purchasing Managers’ Indices index is down at 46.4 while the EU index is at 42.3, both well below the 50 benchmark.

Cebr’s Doug McWilliams points out that modern stock control measures should mean that the ratio of inventories to sales should fall. Yet globalisation – which has made supply chains longer and more complex – has done the reverse, causing them to rise. Which is why so many inventories which are being loaded in China and shipped to the West are hidden from the public eye, as they do not appear in any of the country’s figures.

It is why the composite world shipping rate has collapsed from $10,377 per container two years ago to $1,791 last week because of falling demand. We can but hope that central bankers plotting their next moves in Wyoming have these shipping numbers in front of them as they decide on the smoke colour.

They tell a grim story and demonstrate why rates should stay where they are.

On the crest

If shipping rates are a clue to what’s happening in the global economy, house sales are the best indicator in Britain. And it is not looking good. Hot on the heels of terrible results from housebuilders Bellway and Persimmon came the bleakest of profit warnings from Crest Nicholson.

House sales have plunged. Full-year profit is forecast to be £50m rather than £74m and job cuts are on the cards.

The housebuilder sold half of what it had expected to sell. That is a big drop, reflecting how nervous potential buyers are about taking on mortgages when they don’t know which way rates are going next.

While some fixed-deals have been falling over the last few weeks, future interest rates are still pointing upwards.

Sensibly, buyers are waiting to see what the Bank of England decides next month before taking on a mortgage. They will be hoping too that house prices fall, which they almost certainly will. Yet Crest’s shares might be a buy after almost halving over the last five years. Despite the gloom, Crest’s Peter Truscott sounded confident.

Half-empty Huel

The Huel protein shake-maker is doing surprisingly well. Endorsed by celebrities such as Idris Elba, Huel is opening a factory in Milton Keynes to meet rising demand.

If my experience from the half-empty tubs left around the house by younger family members dabbling with the keep-fit craze is anything to go by, there is more waste than weight coming off the waist, because the taste is so very ghastly.

This post first appeared on Dailymail.co.uk