US job openings (i.e. vacancies) are released a month after the widely-followed employment report but are still useful because they tend to lead payrolls. Private-sector openings rose to a new recovery high in July, suggesting that the stall in private payrolls in August – partly due to the Verizon strike – will prove temporary.

Markets are fearful that a recent sharp fall in global consumer confidence will feed through to lower spending. It is still early but there is no evidence of any impact on August vehicle sales: the G7 total rose solidly from July to its highest level since March – see chart. This reflected increases in Japan and Europe, with the US little changed. Caveat: the gain is partly due to Japanese supply coming back on line, allowing earlier orders to be filled.

US narrow money continued to surge in August, strongly suggesting a further pick-up in G7 six-month real narrow money expansion – viewed here as a key leading indicator of global economic momentum.

US six-month real narrow money growth is the fastest since March 2009, arguing, on the face of it, against sustained US economic weakness – see chart.

10 of the 11 postwar US recessions identified by the National Bureau of Economic Research were preceded by a fall in real narrow money. The exception – the 1953-54 recession – appears to have been triggered by severe fiscal tightening as defence spending was slashed following the end of the Korean war.

Extending the analysis further back, the five interwar US recessions were preceded by, at the least, a stagnation in narrow money.

Such considerations do not preclude renewed GDP contraction but suggest that it would be short-lived. Short recessions have sometimes been associated with a rise in US equities – the S&P 500 index was 5% higher at the end of the July 1990-March 1991 recession than at the start, for example.

Bears argue that the current narrow money surge is being driven by extreme liquidity preference caused by fears of Eurozone-led financial instability and has no positive economic implication. The velocity of circulation, in other words, is collapsing. They made a similar case in early 2009 when claiming that there was no end in sight to the recession or equity market slide.

Part of the build-up is, indeed, due to “hoarding” but the cash will be released into the economy and markets when risk aversion abates. The issue is what policy steps are needed to begin to rebuild shattered investor confidence. Earlier posts have suggested that the ECB needs to reverse its misguided tightening. This would represent an embarrassing U-turn but policy thinking in Europe is shifting rapidly, as evidenced by today's surprise commitment by the Swiss National Bank to cap the Swiss franc at 1.20 against the euro.

With all 12 inputs now available, the “MPC-ometer” continues to predict a narrow majority in favour of expanding QE at this week’s meeting. This is the first easing signal given by the model since November 2009, when the MPC announced a further £25 billion of gilt purchases.

The final input was today’s PMI services activity index for August, which continued the recent run of weaker-than-expected data by falling from 55.4 in July to 51.1 – the consensus forecast was 54.0.

The MPC-ometer’s output is in the form of a prediction for the average interest rate vote of Committee members. The September forecast is -18 basis points, consistent with six members voting for a quarter-point cut and three no changes.

Since the MPC appears to have set 0.5% as a floor for official rates, the suggested six doves will, presumably, vote instead for an expansion of QE. (At the August Inflation Report press conference, the Governor stated that “We can raise Bank Rate or we can increase our asset purchases according to the direction in which we want to go.”)

The consensus expects the current high headline CPI increase to prevent the MPC from moving this month but the Committee, historically, has accorded more weight to forward-looking survey and market inflation measures. CBI industrial firms’ pricing plans have softened notably since the early summer, as have five-year inflation expectations implied by the gap between conventional and index-linked gilt yields – see chart. The MPC cut rates in October 2008 despite CPI inflation of 4.7% as the global economic outlook darkened following Lehman’s collapse.

The suggestion that the MPC will ease this week does not imply approval of such action. Previous posts have argued that – in contrast to early 2009 – the UK economy is not suffering from a shortage of liquidity. “Excess” money created by more QE could put further downward pressure on the exchange rate, thereby boosting tradeable goods prices and inflation rather than activity.

UK GDP figures are likely to receive another hit from a plunge in construction activity, at least as recorded by the Office for National Statistics.

Construction orders slumped by 16% in the second quarter, breaking below the recession trough of the first quarter of 2009 to reach the lowest level since 1980. This suggests that construction output, which lags orders, will fall at least to the low reached in the second quarter of 2009, implying a decline of 7% from the second quarter of 2011 – see chart.

Construction output accounts for 6% of the economy so a fall of 7% would cut GDP by 0.4%, probably spread over the third and fourth quarters of 2011.

The suggestion that construction activity is even weaker than at the trough of the recession is not supported by PMI and EU Commission construction surveys. The PMI, indeed, is consistent with gradual expansion, with the headline index above the breakeven 50 level every month so far this year (52.6 in August).

The slump in official orders should contribute to the MPC reducing its near-term GDP projection, further increasing the probability of an expansion of QE at next week's meeting.

Real M1 deposits continue to contract in the Eurozone periphery, as noted in a post last week. There are some interesting country differences, however.

Italian real M1 deposits, having declined sharply in late 2010 and early 2011, returned to six-month growth in July – see first chart. Spanish deposits, by contrast, have recently started to fall again, having perked up in the spring. This suggests greater scope for economic and fiscal disappointment in Spain than Italy, in turn casting doubt on the sustainability of the collapse in the Spanish / Italian 10-year government bond yield spread from 90 basis points in June to -5 currently.

Among the bail-out countries, Ireland may be decoupling from Portugal and Greece, with real M1 deposits flat in the six months to July versus falls of 7% and 10% respectively.

Other hopeful Irish developments include a large fall in relative unit labour costs since 2008 – second chart – and a recent reduction in banks’ need to borrow from the ECB / Central Bank of Ireland – third chart.