Today merges several of our themes as a rather packed diary sees Bank of England Governor Mark Carney give evidence to Parliament just as the latest employment and wages data are released. There are various matters which make have him breaking out in a cold sweat. One is the rally in the UK Pound £ to US $1.266 which even he may be able to talk down. The next is the rise in annual wage growth above 4% which in the past has been regarded as something of a threshold for considering interest-rate increases. Of course that is likely to go the way that the 7% unemployment rate did! That of course raises the next issue of how the unemployment rate has fallen below 4% being chased by an equilibrium unemployment rate which is apparently now 4.25%.
It was only yesterday that I pointed out that Dave ( Sir David to his friends) Ramsden of the Bank of England was still churning out the failed Ivory Tower output gap methodology.
From my perspective, I also think spare capacity might not have opened up that much despite that weakness in underlying growth,
Also tucked away in a really dull speech about longer-term trends Sir Jon Cunliffe made the case for more policy activism.
But, taken together with other changes in the economy – such as changes in the labour market which appear to have led to some flattening of the wage Phillips curve and
changes in the pass-through of labour costs to consumer prices – the probability is that demand management will need to use more tools to stimulate demand in downturns and work harder to prevent macro-economic tail events.
My apologies for their Phillips Curve obsession, but you see he is trying to tell us lower interest-rates are really nothing to do with him and his colleagues and then ask for even more freedom to interfere in the economy! He continues on that path here and “can be overdone” is classic civil service speak where is he taking out a bit of an each-way bet for himself ( but not us).
There is a lively debate over the extent to which aggressive use of monetary policy tools to stimulate demand creates financial stability risks by inflating asset prices and encouraging risk taking and the build-up of debt. My own view is that this can be overdone. There are, as I have said, deep-seated underlying structural drivers of low for long.
Perhaps he learnt all this stuff during his time at HM Treasury ( 1990-2007) which seems to have undertaken a reverse takeover of the Bank of England.
Today has brought some news that the recent past was not quite as good as we thought it was . Last month we were told that average earnings growth in July was 4.2% but this morning that has been cut to 3.9% which ch-ch-changes the picture somewhat. So now let us peruse this month’s data.
Estimated annual growth in average weekly earnings for employees in Great Britain was 3.8% for both total pay (including bonuses) and regular pay (excluding bonuses).
This means that the Bank of England can let loose a sigh of relief as the 4% wages growth threshold was not in fact in play as we only made 3.9% and have now dipped back to 3.8%. In terms of a pattern we see that since October last week each month with only one exception has seen annual wages growth above 3% so we have moved to a new higher path. Of which August at 3.6% is consistent with that and the detail backs this up.
All sectors except manufacturing saw annual pay growth of at least 3.0%; construction saw the highest estimated growth of over 5.5% for both total pay and regular pay…..manufacturing saw the lowest growth, estimated at 2.7% for total pay and 2.5% for regular pay.
So the numbers are good but not as good as we were previously told and maybe this was a factor.
Public sector pay growth has fallen back below that for the private sector, following higher growth in March to May 2019, impacted by the effect of a different pattern of pay rises for some NHS staff in 2019 compared with 2018.
According to the official rhetoric the position is now rather good.
In real terms (after adjusting for inflation), annual growth in total pay is estimated to be 1.9% and annual growth in regular pay is estimated to be 2.0%.
As nominal pay growth is the same I am not sure how they get to that! Let us hope there is a difference at the second decimal place. But the fundamental issue is that it requires the use of the fantasy imputed rent driven CPIH inflation measure to get numbers that high. If we use RPI it drops back to more like 1%.
Also even using it we remain in a depression for real wage growth.
The equivalent figures for total pay in real terms are £502 per week in August 2019 and £525 in February 2008, a 4.4% difference.
The situation here has been good for seven years or so but this morning indicated the first signs of a wobble.
The UK employment rate was estimated at 75.9%; higher than a year earlier (75.6%) but 0.2 percentage points lower than last quarter……the estimated employment rate for women was 71.6%; this is 0.6 percentage points up on the year, but 0.3 percentage points down on the quarter
I added the detail on women because the change was them. Does anybody have any thoughts as to why this might be so?
We get some more detail from this.
Estimates for June to August 2019 show 32.69 million people aged 16 years and over in employment, 282,000 more than a year earlier. This annual increase was mainly driven by women (up 202,000 on the year), those aged 50 years and over (up 287,000 on the year) and full-time workers (up 263,000 on the year). There was, however, a 56,000 decrease in employment on the quarter, which was the first quarterly decrease since August to October 2017.
Furthermore we seem to be switching towards self-employment again.
However, the latest estimate shows the weakest annual increase for employees since May to July 2012 (see Figure 3), making it smaller than the annual increase for the self-employed.
This has been in a long downtrend but again we saw a change today.
The UK unemployment rate was estimated at 3.9%; this is lower than a year earlier (4.0%) but 0.1 percentage points higher than last quarter…….the level of unemployment increasing by 22,000 to 1.31 million, in the three months to August 2019.
Yet rather oddly considering the pattern of the employment data above it was men that were made unemployed.
the estimated UK unemployment rate for men was 4.0%, 0.1 percentage points lower than last year but 0.1 percentage points higher than the previous quarter……..the estimated UK unemployment rate for women was 3.7%, down 0.3 percentage points on a year earlier but largely unchanged on the quarter.
This is the first real hint of a possible sea change in the UK labour market which has just seen something of a troika of news. Wage growth is slower than we thought combined with weaker employment and higher unemployment. We still have much better wage growth and the employment levels are very high but if we were the Star ship Enterprise the Captain would be considering pressing the yellow alert button.
The changes in the wages data remind us of the caution that is requited with even official data. Let me remind you that the self-employed and the armed forces are ignored and that companies below 20 people are mostly imputed.
Returning to the Bank of England then they will be thinking of another interest-rate cut whilst Governor Carney emits gens like this.
“The pound is either going to move up or down,” says Mark Carney ( @BruceReuters)
Also he has been contradicting past Bank of England research.
BANK OF ENGLAND’S CARNEY SAYS UK INCOME AND WEALTH INEQUALITY FELL OVER THE PERIOD BOE QUANTITATIVE EASING WAS ACTIVE ( @RedboxGlobal )