Today we find ourselves reviewing the latest data on the UK employment and wages situation. We do so noting that the inflation situation for real wages has briefly improved although one months data here compares with the 3 months over which the headline wages data is calculated. But before we get to it there were some extraordinary statements made to the Treasury Select Committee of UK Parliament by Bank of England Governor Mark Carney. Make what you will of this from the Guardian.
“The thing about forward guidance,” drawled Mogadon Mark Carney, opening one eyelid a millimetre or two, “is that it is guidance that is forward. Which isn’t to say it’s meant to be in any way accurate. Indeed, it would be surprising if it were. The most important thing about forward guidance is that the underlying economic determinants should be correct, not that it should be helpful.”
Now those who remortgaged on the back of his hints and promises of higher interest-rates or took out fixed-rate business loans may be checking the definition of miss-selling at this point as they read the section I have highlighted. Indeed Governor Carney admits that I have been right all along to point out his failures as he admits even he would be surprised if he had been right. This is very awkward for those who have placed themselves full square behind him although to be fair there is probably not much daylight where they placed themselves. I note also that Governor Carney is now a figure of fun in the Guardian, does this mean that he no longer has film-star looks and we need to be told if he is still a rock star central banker I think?
Also there was a particularly dubious statement from Governor Carney. From the Financial Times.
Mr Carney told a committee of MPs that low global interest rates and rising inequality in developed countries were driven by “much more fundamental factors”.
UK interest-rates just got lower because he cut them in August! Oh and he introduced an extra £60 billion of UK QE Gilt purchases to try to reduce Gilt yields (admittedly not going so well right now) and £10 billion of Corporate Bond buying to do the same there. His Chief Economist called this a “Sledgehammer” but Mark now seems to think it was nothing to do with that at all? Odd as he finds the time to try to take any credit he can from it.
Also the issue of rising inequality is another thing which is apparently nothing to do with Governor Carney. As of course time only started in June 2013 some may forgive him for not reading Bank of England research from August 2012.
QE has caused the price of gilts to rise and yields to fall, in turn leading to an increase in demand for, and price of, a wide range of other assets, including corporate bonds and equities.
Indeed it went further than this.
By pushing up a range of asset prices, asset purchases have boosted the value of households’ financial wealth held outside pension funds, but holdings are heavily skewed with the top 5% of households holding 40% of these assets.
Actually we can combine both of Mark Carney’s denials as you see back in 2012 the Bank of England had the opposite view of the impact in savers.
That suggests that deposit holders are likely to have been affected much more by the cuts in Bank Rate than by downward pressure on longer-term interest rates as a result of QE.
Before I move on this from that 2012 paper was a real example of moral hazard when you review your own policies.
The paper shows that QE also has a broadly neutral impact on a fully funded ‘defined benefit’ scheme.
Now whilst they at the Bank of England may have a fully funded pension elsewhere they were in rather short supply and since then the supply has got shorter due to its actions.
Also as happens so often with Bank of England Governors Mark Carney has become keen on a lower value for the pound.
“The UK economy has … had a large external imbalance and that large external imbalance as represented by a large current account deficit needed to be righted,” he said. “The exchange rate is part of that adjustment mechanism.”
Odd that he seems to have got on that particular bandwagon so recently as you could have made that case for years and indeed decades.
Oh and here is a development which ties in yesterday’s inflation numbers with today’s wages data and provides a headache for the distributional denials of Mark Carney.
This number has seen quite a boom as the UK economy recovers from the credit crunch and it continues as shown below. From the Office for National Statistics.
There were 31.80 million people in work, 49,000 more than for April to June 2016 and 461,000 more than for a year earlier.
There were 23.24 million people working full-time, 350,000 more than for a year earlier. There were 8.56 million people working part-time, 110,000 more than for a year earlier.
So we continue to generate jobs and this means that the employment rate of 74.5% is as high as it has been since the numbers started in 1971. Care is needed as the definition of full-time working is somewhat flexible and we would need to know population size to have an idea of employment per capita.
This opens well too.
The unemployment rate was 4.8%, down from 5.3% for a year earlier and the lowest since July to September 2005…….There were 1.60 million unemployed people (people not in work but seeking and available to work), 37,000 fewer than for April to June 2016 and 146,000 fewer than for a year earlier.
Also I note that unemployment for women fell which is good as last month the situation was different and seemed to be picking them out. In the silver lining there is a cloud but if you make a big deal of it you have to explain why you are pushing a series which was already discredited some 30 years ago.
For October 2016 there were 803,300 people claiming unemployment-related benefits. This was:9,800 more compared with September 2016…9,900 more than for a year earlier.
These continued as before.
Between July to September 2015 and July to September 2016, in nominal terms, total pay increased by 2.3%, unchanged compared with the growth rate between June to August 2015 and June to August 2016.
Although real wage growth dipped slightly.
Comparing the 3 months to September 2016 with the same period in 2015, real AWE (total pay) grew by 1.7%, 0.1 percentage points lower than seen in the 3 months to August.
Care is needed here though because if we use the Retail Price Index to calculate real wages we see that the growth fades significantly as it these days is around 1% more than the official measure. But if we stick with the official measure you may enjoy some perspective here.
Looking at longer term movements, since comparable records began in 2000 average total pay for employees in Great Britain in nominal terms increased from £311 a week in January 2000 to £505 a week in September 2016; an increase of 62.2%. Over the same period the Consumer Prices Index increased by 40.6%.
We find much to consider here as Governor Carney continues to twist and turn and indeed spin as he attempts to explain why he cut Bank Rate and eased monetary policy into a currency decline. A simple precis of his approach is that everything good is due to him and bad isn’t. Meanwhile the UK labour market looks like it has carried on regardless with one clear exception which is that if you have employment at a peak wage growth would in the past be much higher. Remember also that the wage growth excludes the self-employed and small businesses. Also higher employment does tend to have this effect these days.
0.2% growth in output per hour in Q3, down from 0.6% in Q2 #productivity
Speaking of numbers this is an intriguing one from Merryn Somerset Webb.
Pension Protection Fund spends £600,000 on PR. Why do they need PR? Someone explain?