Of key interest in the November housing market survey from the Royal Institute of Chartered Surveyors (out overnight Monday/Tuesday) will be if there is further evidence that fewer properties are now coming on to the market. The October RICS survey revealed the balance of surveyors reporting an increase in instructions to sell fell to -4 from +22 in September, thereby marking the first decline in houses coming on to the market for nine months. If this marked the beginning of a falling trend of houses for sale, it would provide some support for house prices. Nevertheless, the survey also revealed buyer enquiries fell for a fifth successive month in October, with the balance declining to -12% from -2% in September. Consequently, the housing demand/supply balance remained in favor of buyers. Meanwhile, we expect the RICS survey to reveal the balance of surveyors reporting that house prices increased over the previous three months edged down further to -50% in November after dropping to an 18-month low of -49% in October from -36% in September.
Further evidence of softening house prices is expected to come on Tuesday when theDepartment for Communities and Local Government (DCLG) releases data for October. It needs to be borne in mind that the DCLG provides lagging evidence on house prices as the office calculates its index at the time when mortgages are completed. The September data from the DCLG showed that house prices fell 0.8% month-on-month (m/m), thereby causing the year-on-year (y/y) increase to moderate to 6.1% from 8.1% in August and a peak of 10.6% in May.
We expect house prices to trend down gradually overall to lose around 10% from their peak 2010 levels by the end of 2011. High unemployment, muted wage growth, an increasing fiscal squeeze, low consumer confidence, difficulties in getting a mortgage, a housing supply/demand balance currently firmly in favor of buyers, and a house price/earnings ratio above long-term norms are a poor combination of factors for house prices. Low interest rates and the current stamp-duty holiday for first-time buyers on all properties costing up to £250,000 only partially offset these adverse factors—especially as it is difficult for many people to get a mortgage.
Much will obviously depend on mortgage availability, the amount of houses coming on to the market, and how well the economy holds up as the fiscal squeeze increasingly kicks in.
Inflation in November
Data released Tuesday should show annual consumer price inflation remained at 3.2% in November, having edged up to this level in October from 3.1% in September. Consumer price inflation had previously trended down gradually to September's low of 3.1% from a 17-month high of 3.7% seen in April. This would keep consumer price inflation appreciably above the Bank of England's target rate of 2.0%. Core consumer price inflation is seen edging down to 2.6% in November from 2.7% in October.
We expect higher oil and commodity prices to have had an upward impact on consumer price inflation in November. Nevertheless, this may well have been countered by earlier and increased discounting by retailers. Significantly, the British Retail Consortium (BRC) reported that overall shop price inflation dipped to 2.0% in November from 2.2% in October. Food price inflation moderated to 4.0% in November from 4.4% in October, while nonfood inflation dipped to 0.9% from 1.1%.
Consumer price inflation looks likely to head toward 3.5% over the next few monthsbecause of higher oil and commodity prices, as well as elevated food prices. Furthermore, value-added tax (VAT) will rise from 17.5% to 20.0% in January, although this may not actually push the annual inflation rate up, given there was also a VAT hike in January 2010 (to 17.5% from 15.0%).
Consumer price inflation will hopefully move below 3.0% late in 2011 as the temporary upward impact from VAT developments, higher energy, commodity and food prices, and sterling's past sharp depreciation wanes. Meanwhile, underlying inflationary pressures should be limited by appreciable excess capacity, likely muted growth in 2011, strong competition on the high street, and high unemployment. Inflation will hopefully dip below 2.0% early in 2012 as the impact of the January 2011 VAT hikes drops out.
Unemployment in November
Data on Wednesday are forecasted to show that claimant-count unemployment was flat in November. Claimant-count unemployment fell 3,700 in October after increases of 1,300 in September and 3,800 in August (which had been the first rises since January). The renewed modest drop in claimant-count unemployment in October was obviously welcome news, but it should be noted that the falls in claimant-count unemployment were regularly around 30,000 during February–May. The number of claimant-count unemployed stood at 1.4654 million in October, which was just above the 16-month low of 1.4640 million seen in July. The claimant-count unemployment rate is expected to remain at 4.5% in November, where it has been since June. This is down from the 12-year high of 5.0% seen in the five months through to January 2010.
Meanwhile, the number of jobless on the International Labor Organization (ILO) measure is seen falling 15,000 in the three months to October to stand at 2.452 million, thereby keeping the ILO unemployment rate at 7.7%. Unemployment on the ILO measure fell 9,000 in the three months to September. ILO data are also likely to show that employment continued to rise in the three months to October, but at a markedly reduced rate of 50,000. Employment rose 167,000 in the three months to September. Furthermore, the rise in employment is expected again to be mainly due to an increase in the number of part-time workers.
Labor market data may well be mixed in the near term or even show limited improvement, but we expect a modest deteriorating trend to emerge as 2011 progresses. We suspect that unemployment is headed up in 2011 as a consequence of slower, below-trend growth, rising business caution, and public-sector jobs being increasingly pared. Specifically, we forecast unemployment on the ILO measure to rise to 2.65 million by end-2011 and to peak around 2.75 million around mid-2012. This would see the unemployment rate rise to 8.4% by end-2011 and to a peak of 8.6% in mid-2012.
Major job losses will occur in the public sector as the government slashes spending, and we doubt the private sector will be able to fully compensate for this. We suspect firms will become increasingly cautious in their employment plans, reflecting slower growth and concerns that the intensified fiscal squeeze will hold back economic activity for an extended period. There are also likely to be significant job losses in private companies supplying services or goods to the public sector. In particular, many firms are likely to try to meet any increase in business through making greater use of the workers they have already or through using part-time staff, and they are likely to be reluctant to take on any more permanent staff unless they are really convinced that sustained improvement in their business is probable.
Meanwhile, earnings growth is expected to have risen modestly in October but to have nevertheless remained very low compared with past norms, reflecting relatively high unemployment, workers' job insecurity, and the ongoing need for companies to limit their costs in a still-challenging environment. Annual underlying average weekly earnings growth (regular pay excluding bonus payments) is seen limited to 2.3% in the three months to September. Meanwhile, annual average weekly earnings (total pay) growth is expected to have risen 2.2% in the three months to October.
Retail Sales in November and CBI Distributive Trades Survey for December
Retail sales volumes (Thursday) are seen rising a reasonable but unspectacular 0.4% m/m in November. This would cause sales volumes to be up 0.7% y/y. Retail sales volumes rose 0.5% m/m in October, after dipping in both September (by 0.5% m/m) and August (by 0.4%).
The Confederation of British Industry (CBI) distributive trades' survey for December (Wednesday) is very hard to forecast because of the impact of the recent snow and ice in preventing people from getting to the shops. On balance, we forecast the survey to show that the balance of retailers reporting sales were up y/y fell back +30% from +43% in November.
The bad weather could not have come at a more inopportune time for retailers. The crucial Christmas shopping period is now in full swing and an extended, weather-related period when people could not shop threatens to be highly damaging for holiday sales. Furthermore, many retailers may lose out on sales through deliveries of products being seriously delayed to them. Supply chains have been massively hit by the snow and ice, with many products being stuck at container ports. Although the weather has improved, conditions remain difficult in some areas and there is concern that more heavy snow could be seen in the run-up to Christmas.
The problem for retailers is compounded in that many are hoping for their sales to be lifted in the final weeks of 2010 from consumers looking to make purchases, particularly of big-ticket items, ahead of January's VAT hike.
Usually, most retail sales lost due to bad weather are made up. Consumers tend to delay purchases rather than cancel them altogether. Nevertheless, some people may end up buying fewer Christmas presents because of time constraints and some of the lost sales are not subsequently made up. With Christmas falling on a Saturday, it is absolutely critical for retailers that the next two weekends see weather conditions that do not prevent or deter consumers getting out and about.
Further out, the concern remains that consumers will limit their spending in the face of serious headwinds. Consumer confidence is currently low while the substantial fiscal squeeze will increasingly hit public-sector jobs and consumers' pockets. Households already face high unemployment, negative real earnings growth, and elevated debt levels. On top of this, the weakness of the housing market is likely to have a dampening impact on consumer spending. Furthermore, rising energy prices and elevated food prices are limiting the ability of some consumers to make discretionary purchases.
14 Dec - RICS House Price Balance, November: -50
14 Dec - DCLG House Prices, October (Year-on-Year): not forecast
14 Dec - Consumer Price Inflation, November (Month-on-Month): +0.3%
14 Dec - Consumer Price Inflation, November (Year-on-Year): +3.2%
14 Dec - Core Consumer Price Inflation (ex Food, Drink, Tobacco), November (Year-on-Year): +2.6%
14 Dec - Retail Price Inflation, November (Month-on-Month): +0.2%
14 Dec - Retail Price Inflation, November (Year-on-Year): +4.5%
14 Dec - Underlying Retail Price Inflation, November (Month-on-Month): +0.2%
14 Dec - Underlying Retail Price Inflation, November (Year-on-Year): +4.5%
15 Dec - Claimant Count Unemployment Rate, November (%): 4.5%
15 Dec - Claimant Count Unemployment Change, November (000s): 0
15 Dec - International Labor Organization Unemployment Rate, November (%): 7.7%
15 Dec - Average Weekly Earnings - total pay, November (3-Month/Year): +2.2%
15 Dec - Average Weekly Earnings - regular pay excluding bonus, November (3-Month/Year): +2.3%
15 Dec - CBI Distributive Trades Reported Volume of Sales, December: +30%
16 Dec - Retail Sales, November (month-on-month): +0.4%
16 Dec - Retail Sales, November (year-on-year): +0.7%