Today sees the publication of the economic output and growth figures for the UK for the second quarter of 2016 and thus will let us know how we did in the first quarter of 2016. We may even get a brief glimpse of post Brexit referendum UK but it will be barely a glimpse because a lot of the data for the third month in the GDP (Gross Domestic Product) preliminary report is estimated. That is a function of the UK being relatively quick in its production of GDP numbers and no doubt many of you will be thinking that especially this time around it might have been wise to take a little longer for a more complete picture.
Real Wages in the UK
One of the main themes of my work has received some new data and something of an airing in the media this morning. For newer readers it is that real wages in the UK have fallen considerably in the credit crunch era and this followed a period of slowing growth for them. This contrasted to strong growth in the past. These ch-ch-changes were of course missed by the economic models up in their Ivory Towers who continued to forecast real wage growth of around 2% per annum which may have been true for their writers and authors but not for the rest of the economy. If you want to know why they (Bank of England, OBR etc ) have been so consistently wrong that is perhaps the best place to start.
The Trades Union Congress or TUC has looked at OECD ( Organisation for Economic Cooperation and Development) data and concluded this.
The decline in UK real wages since the pre-crisis peak is the most severe in the OECD, equal only to Greece. Both countries saw declines of 10.4% per cent between 2007 Q4 and 2015 Q4. Apart from Portugal, all other OECD countries saw real wage increases, albeit mostly modest ones.
There is an interesting counterpoint to this which makes one think of old theories about a Phillips Curve style relationship between (real) wages and employment.
At the time their UK release contrasted a strong employment performance with weak earnings growth. The employment rate is at a record level, some 5 percentage points above the OECD average. On the other hand real wages “fell by more than 10% after 2007”
Sarah O’Connor in the Financial Times puts it another way.
The figures expose another side of Britain’s so-called “jobs miracle”its record employment rate of 74.4 per cent has come at the cost of lower real pay.
If you look at the OECD report on the UK it tells us this.
The disappointing growth in real wages partly reflects weak labour productivity growth of only 2% from 2010 to 2015, the smallest increase in the OECD after Hungary, Italy and Greece.
Also they give a potential reason.
This may be linked to the growth in jobs with low-hours and intermittent work.
The UK real wages data presented by the OECD is different to the official data which the FT has kindly reproduced for us.
the UK’s real-wage data; the latter suggest wages fell by a more modest 4.5 per cent between 2007 and 2015.
Okay and the differences between the calculations are? From the TUC.
Note that the OECD derive real wages from national accounts information, dividing total wages by hours worked and putting into real terms with the household consumption deflator. These can differ from those based on average weekly earnings and CPI inflation that tend to be used in the UK.
Well not can as they have differed here by quite a bit.
If we look at the overall picture I would take a lot of convincing that UK real wages have fallen by the same amount as in Greece as when I recall looking at the latter they had fallen by around a quarter. But we have been reminded that rather than a miracle the UK seems to have traded real wage growth for jobs growth. If we look back this is something economists wanted but of course they will have all forgotten/redacted that now.
As to the jobs created then there has been an element of them being lower skilled ones which has likely also affected productivity growth as well. This leads to a very awkward question which is the jobs growth has probably driven the measures of real wages and productivity lower. So as well as averages we need to see how different groups have done/performed. Otherwise we would be in danger of saying that we did not want the new jobs. That of course may be true in a few cases but would we rather have much higher unemployment.
Also we may have got a glimpse into the state of play in self-employment pay from the OECD numbers although the thorny question of calculating hours worked is likely to still be a problem.
Today’s UK GDP report
This was welcome news and to give them credit bang in line with the monthly report from the NIESR.
Change in gross domestic product (GDP) is the main indicator of economic growth. GDP was estimated to have increased by 0.6% in Quarter 2 (Apr to June) 2016 compared with growth of 0.4% in Quarter 1 (Jan to Mar) 2016.
There was something both welcome and sadly rare in recent times in the numbers.
Growth in the production industries in Quarter 2 2016 increased by 2.1%, contributing 0.30 percentage points to quarterly GDP growth….
Indeed it was back by this which from memory saw a boost from the pharmaceutical industry.
manufacturing increasing by 1.8% in Quarter 2 2016 following a decrease of 0.2% in Quarter 1 2016
I have nothing against the UK service-sector but it is nice for once for it not to be the main player as our economy was getting ever more unbalanced.
Let us also look for some perspective as to where we stand.
GDP was 2.2% higher in Quarter 2 2016 compared with the same quarter a year ago……In Quarter 2 2016, GDP was estimated to have been 7.7% higher than the pre-economic downturn peak of Quarter 1 2008.
Of course the performance in GDP per capita has been nothing like as rosy and only recently struggled into positive territory. We learned little on that today as that comes in the later reports.
Whilst it is the main area which may have been genuinely affected by the wet weather this was not so good.
agriculture decreased by 1.0%.
There is a fair bit to consider here. If we start with the GDP numbers then we saw a welcome boost to production a fair bit of which was due to manufacturing especially of pharmaceuticals in the spring. Rather than an accelerating picture for 2016 so far it seems likely to turn out that we saw sustained consistent growth I think. Of course we all want to know what happens next!
We however get a somewhat different picture from the data for real wages for the UK. Inflation measurement matters a lot here and whilst I think that the position is worse than the official UK data mostly because they use CPI which under reports inflation via the way it ignores owner occupied housing costs. If we go back to the UK GDP post credit crunch growth figure of 7.7% well real wages have fallen by a similar amount which as ever leaves us singing along with Johnny Nash.
There are more questions than answers
Pictures in my mind that will not show
There are more questions than answers
And the more I find out the less I know
Yeah, the more I find out the less I know
Also today has seen examples of L.I.F.E.G.O.E.S.O.N from City-AM.
London City Airport, probably my favourite airport, is expanding in a £344m investment deal…….GSK invests £275m in three UK manufacturing sites