UK real wages resume their fall

This morning brings us to the UK labour market data and if it feels early you are right. You see the UK statistics bodies decided that our Members of Parliament needed more time to digest the numbers before Prime Ministers Questions on a Wednesday lunchtime. It is not that big a deal except perhaps for confidence in the mathematical ability of our MPs.

In terms of expectations the mood music for wages has been positive with the latest survey from Markit/REC leading the way.

Strong demand for staff and low candidate
availability underpinned further increases in starting salaries and temp pay. Notably, salaries awarded to successfully placed permanent workers rose at the
steepest rate for three years.

This was driven by this.

Growth of demand for staff strengthened to a sixmonth
high in May, with sharp increases in both
permanent and temporary roles signalled by the
latest data.

So according to them there was more demand for staff which ran into shortages.

Overall, candidate availability declined at a sharper
rate midway through the second quarter. Permanent
candidate numbers fell at the fastest rate for four
months, while short-term staff availability
deteriorated at the quickest pace since last
November

Hence the higher pay albeit that beating the last 3 years is not spectacular but it is an improvement. Of course after yesterday’s data we are likely to be more sceptical about surveys from Markit as I note that it contradicts that release in a coupe of ways. Firstly this.

Although growth of demand for both permanent and
temporary staff in the private sector edged down
slightly since April,

It seems unlikely that manufacturers were looking for extra staff in April after the decline in production but let us be optimistic for now and hope that there was a surge in May leading to this.

Engineering was the best performing sector in the
demand for permanent staff league table during May.

Retail

Even the Markit/REC report pointed out the signs of trouble here.

with the exception of Retail, which registered a further
decline.

Indeed this seemed to be on the march again only yesterday.

Discount retailer Poundworld has appointed administrators, putting 5,100 jobs at risk.

The move came after talks with a potential buyer, R Capital, collapsed leaving Poundworld with no option other than administration. ( BBC)

This morning brought news of a major factor driving this as the high street New Look fashion store had very weak figures and the online Boohoo very good ones. But even if we add in the job gains as for example Amazon announcing 2500 new jobs recently to deliver all this online business this is a sector with falling employment overall.

Today’s data

Let us start with wages.

Between February to April 2017 and February to April 2018, in nominal terms, total pay increased by 2.5%, slightly lower than the growth rate between January to March 2017 and January to March 2018 (2.6%).

That is not inspiring for the survey we looked at earlier although there is some better news if we look into the detail. This is because total wage growth was revised up to 2.5% in March which April matched. So the numbers are now holding on a monthly basis at a higher level than we though last month but they are not rising.

As ever many prefer to cherry pick the data as for example the BBC is using a sub set of the numbers.

Between February to April 2017 and February to April 2018, in nominal terms, regular pay increased by 2.8%, slightly lower than the growth rate between January to March 2017 and January to March 2018 (2.9%).

This poses a problem as bonus pay matters to many so why does it get ignored? For example if you get the number quoted for average regular pay of £484 per week would you ignore the £32 of bonuses? At a time of pressure on real wages surely bonuses are more important.

If we stick with cherry pickers it was a dreadful month for the Bank of England as it has guided us towards private-sector regular wages which rose by 3.2% in March and 2.5% in April! Ooops and time for that to be redacted and replaced by a new measure like the unemployment rate was in the first phase of Forward Guidance. On a 3 monthly comparison it only falls from 3% to 2.9% but the catch is that April will be in the next two versions of that.

Moving to real wages we see sadly yet more cherry-picking. From the official release.

Between February to April 2017 and February to April 2018, in real terms (that is, adjusted for consumer price inflation), regular pay for employees in Great Britain increased by 0.4% and total pay for employees in Great Britain increased by 0.1%.

They use the woeful CPIH for this which assumes that owner occupiers rent their property to themselves when they do not. Whereas if they used the CPI for example as the casual reader might assume then real wages fell by 0.1% if compared to total pay. Fan of the Retail Price Index or RPI will continue to see falling real wages.

This is a familiar issue and seems to be something of a never-ending story.

Employment and Unemployment

The number below continues to be rather stellar.

There were 32.39 million people in work, 146,000 more than for November 2017 to January 2018 and 440,000 more than for a year earlier.

This does confirm at least part of the recruiters survey above. Let me just point out for newer readers that this is a quantity measure not a quality one and we have already had an issue with the quality number called wages. As another example the definition of full-time employment is of the chocolate teapot variety in my opinion. We may be getting a hint of an issue here from this alternative measure.

but total hours worked decreased by 4.1 million to 1.03 billion. (the number of people in employment increased by 146,000)

Maybe this was an impact of the cold snap we got in February/March but it is a rare sign of weakness in these section of data as hours worked per full-time employee fell.

Meanwhile there was more good news on unemployment

There were 1.42 million unemployed people (people not in work but seeking and available to work), 38,000 fewer than for November 2017 to January 2018 and 115,000 fewer than for a year earlier.

We have had loads of forecasts that unemployment will rise in the UK and even sectoral examples of it ( Retail) but overall it continues to fall even though it includes the recent weaker period if we look at the GDP numbers.

Also I get asked on here from time to time about the residual sector in these numbers which has been improving too.

The inactivity rate (the proportion of people aged from 16 to 64 years who were economically inactive) was 21.0%, lower than for a year earlier (21.5%) and the joint lowest since comparable records began in 1971.

Comment

Let me open with  piece of good news which is that it looks like UK productivity is currently improving as we may not have had much economic growth in 2018 but it is divided by a falling number of hours worked.

That is something although if we switch to the Ivory Towers things are going from bad to worse. After all the Office for Budget Responsibility switched about 9 months ago to projecting weaker productivity growth. That is before we get to the output gap theories it and the Bank of England hold so dear. As unemployment falls below what the Bank of England considers to be the equilibrium rate wages should be soaring except when you climb out of its dark,dank and dusty bunker they are not growing at the 5% per annum suggested by the OBR back in the day.  Forward Guidance and all that.

Let me finish by pointing out that rather shamefully the self-employed are excluded from the average earnings data. The numbers need some Coldpaly.

Lights will guide you home
And ignite your bones
And I will try to fix you

 

 

 

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9 thoughts on “UK real wages resume their fall

  1. I wonder why separate figures for real wage growth of company directors, vice- chancellors, senior health managers, chief constables, local authority directors, etc are not published as well, with as much publicity?

    • Could I add to your list city bankers, lawyers, fund managers, accountants etc?
      I rather doubt that they are facing a tremendous squeeze, but perhaps that is just my cynicism …

  2. Slightly off topic, Shaun, but the regular high street administrations and closures at the same time as online success surely must lead to reductions in rent and rates on the high street?
    Most people care about how much things cost and, since online retailers set up in cheap out of town sites, the cost of high street shops is going to have to come down.
    At present, it seems that the wages (or redundancies on closures) of retail staff are taking the strain rather than the property investors.

    • They did arrange for commercial property to be converted to housing without planning, that rather propped it up. I don’t know about those out of town centres, sheds though, can they be turned into homes? I think the local authorities have been persuaded to buy those white elephants so they can pay their own rates…. oh doh!

  3. “UK real wages resume their fall”
    This poses another problem for Carney and his yesmen: how to keep house prices from falling from their current artificial levels.
    Spain has already taken the lead here, giving those who cannot afford to buy or even rent lumps sums, as the article explains, it has nothing to do with helping people, as similarly to the UK, all government intervention does is drive prices even higher, but subsidising the builders and banks profits in the process, the eventual losses will of course in time be passed to the taxpayer.

    Expect similar schemes to be launched here but of course, requiring much larger injections of cash.Savers and those on fixed incomes have indirectly been paying the mortgages of the overindebted for ten years now with zero interest rates, next their taxes will also be going towards that subsidy.

    https://wolfstreet.com/2017/05/06/spains-government-presses-property-bubble-rewind-button/

    • Hi Kevin

      Thanks for the news about Spain which I had not spotted. The official house price index rose by 1.4% in the first quarter of 2018 and by 6.2% on a year before. You will not be surprised to read that Madrid is the leader of the pack at 2.8% and 10.2% respectively.

      But of course that does not go into the official data as owner occupied housing is ignored. You might think that the HICP inflation measure ( what we in the UK call CPI) would pick up the rents move but the trouble is the weighting is so low. Looking it up the housing sector is only 13.1% of the index and also includes water,gas electricity and other fuels. Not much left then….

      Actually I have just tracked it down at 3.1%.

  4. Great blog as usual, Shaun.
    I have added bracketed comments to your quote from the ONS: “Between February to April 2017 and February to April 2018, in real terms (that is, adjusted for consumer price inflation), regular pay for employees in Great Britain increased by 0.4% [by 0.1% using RPIJ as the deflator of nominal wages]and total pay for employees in Great Britain increased by 0.1% [decreased by 0.1% using RPIJ].” One could also rewrite the last sentence to read: “Between April 2017 and April 2018, in real terms, total pay for employees in Great Britain increased by 0.2% [decreased by 0.2% using RPIJ as the deflator of nominal wages].” I don’t believe that it is defensible to use RPI as a wage deflator as the formula bias is a real concern, but the RPIJ adjusts for that, and is a far more appropriate deflator than CPIH.
    By the way, it is not just ignoring house price changes that makes the CPIH an inferior deflator of nominal wages. Its use of a net premiums approach to measure health, vehicle and other forms of insurance is dysfunctional and almost certainly in recent years has contributed to its underestimating UK inflation.The gross premiums approach, used in the RPI, the RPIJ and the experimental HCIs, is much better. Also, Eurostat should change its methodology for the HICP to move to the gross premiums approach, . (Of course, the UK CPI is also the UK HICP.) However, I am sure that the UK will be long gone from the EU, so this is really something the ONS should start looking at on its own. Could you possibly bring this up at tomorrow’s RSS meeting?

    • Hi Andrew and thank you

      I admire your devotion and discipline with regards to RPIJ. That would have been a topic for the House of Lords Economic Affairs Committee if they had not somehow managed to invite 4 people all of whom are against the RPI to give evidence to them today.

      As to tomorrow I will do my best to remember your point. I do have a speaking slot but the timings are tight and I have already submitted my input. I have done my best to squeeze a quart into a pint pot!

      • Thank you for mentioning the Lords taking testimony on the RPI, Shaun. I didn’t know that had already happened. The ONS spokesmen made no reference at all to RPIJ, the HCIs or the quarterly OOH(NA) series, all much worthier efforts than the CPIH. You would think at this time ONs would want to backtrack on the CPIH, rightly ignored by the corporate media. Instead it seems they are doubling down on making it the one index to rule them all and in the darkness bind them.

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