UK employment improves and so does underemployment

As we look at the UK labour market today let us start with something which in one way is good news and in another poses questions. From Reuters last week.

Manchester United winger Jesse Lingard has signed a new contract that will keep him at Old Trafford until 2021, the Premier League club said in a statement on Thursday.

Lingard, who will earn up to 100,000 pounds a week according to British media reports, has an option to extend the deal by a further year.

Firstly congratulations to Jesse and for once it is nice to see an English player benefit from the largesse of the Premier League these days. There is invariably hype in the exact numbers but he seems to have approximately trebled his wages which will do there bit for the average wages series in the future. However those who watched an outstanding display by Juventus last night in the Champions League as they put Barcelona to the sword have been mulling the concept of relativity. From @Football_Tweet

– Paulo Dybala earns €3M a season at Juventus. – Jesse Lingard earns €6M a season at Man Utd.

we return to a familiar question which is how much of the wages growth is in effect a type of inflation?

The impact of Robots

If we look ahead on a more general level then we can expect to see not only more robots in our economy but more advanced ones appear. Not quite as advanced as the ones in the Foundation saga of Isaac Asimov that I am currently reading again but considerable advances are being made. According to Bloomberg such improvements are likely to have an impact on labour markets and wages especially.

Robots have long been maligned for job-snatching. Now you can add depressing wages and promoting inequality to your list of automation-related grievances.

Industrial robots cut into employment and pay for workers, based on an new analysis of local data stretching from 1990 and 2007. The change had the biggest impact on the lower half of the wage distribution, so it probably worsened America’s wage gap.

The exact results are as follows.

One additional robot per thousand workers reduces the employment-to-population ratio by 0.18 percentage points to 0.34 percentage points and slashes wages by 0.25 percent to 0.5 percent, based on their analysis.

Food for thought as we look forwards in years and decades and of course ground which many of the best science fiction writing has warned about.

Today’s data

The quantity data remains pretty strong as you can see.

There were 31.84 million people in work, 39,000 more than for September to November 2016 and 312,000 more than for a year earlier.

There was an additional kicker to this as we got a glimpse into a potentially improving situation regarding underemployment as well.

with an increase in full-time employment (positive 146,000) partly offset by a fall in part-time employment (negative 107,000)………….strong demand for labour is translating into a shift from part-time to full-time employment, and an increase in the average hours worked per week by both full time and part-time employees.

Here is the analysis of hours worked.

Average hours worked per week increased from 32.0 to 32.4 in the 3 months to February 2017, the highest since July to September 2002, largely due to more hours being worked over the Christmas and New Year period compared with recent years.

Fewer part-time workers are looking for full-time work.

Data released today (12 April 2017) show that this measure continued to contract with the proportion falling to 12.6%, down from 14.2% a year ago (and down from a peak of 18.4% in 2013). This proportion is now at its lowest since March to May 2009, but still well above its pre-crisis average of 8.3%.

So it looks as though the situation regarding underemployment has improved as well although the data is only partial and let us finish this section with the unemployment numbers.

There were 1.56 million unemployed people (people not in work but seeking and available to work), 45,000 fewer than for September to November 2016 and 141,000 fewer than for a year earlier.

What about wages?

These were the same as last month in terms of growth.

Between the three months to February 2016 and the three months to February 2017, in nominal terms, total pay increased by 2.3%, the same as between the three months to January 2016 and the three months to January 2017.

Actually there was a rise in the month of February by 2.9% on the year before so maybe a hopeful hint of a pick-up! We will find out as we go through the bonus months of March and April. One thing we do know is that both Sky News and the Financial Times ( “UK wages have grown at their weakest pace in seven months,”) have not checked this.

The official numbers on real wages are below.

adjusted for inflation, average weekly earnings grew by 0.2% including bonuses and by 0.1% excluding bonuses, over the year, the slowest rate of growth since 2014.

So we have something of a discontinuity as we had some real wage growth in February it would appear. Let us cross our fingers that it continues but sadly it seems unlikely ( the comparison is flattered by bonuses falling last year). Of course even if we use the figures for February alone then real wage growth was negative if we compare it to the Retail Price Index.

Also the exclusion of the self-employed from the wages data gets ever more shameful.

self-employed people increased by 114,000 to 4.78 million (15.0% of all people in work).

Can we increase tax on income from wages?

After the debacle of the U-Turn on higher National Insurance contributions from the self-employed there have been arguments that the UK is unable to ever raise more taxes from income. It was interesting therefore to see some international comparisons from the OECD today.

The average single worker in Belgium faced a tax wedge of 54.0% in 2016 compared with the OECD average of 36.0%…..Belgium had the 4th highest tax wedge in the OECD for an average married worker with two children at 38.6% in 2016, which compares with the OECD average of 26.6%.

Not the best place to be single and childless it would appear! But now the UK.

The average single worker in the United Kingdom faced a tax wedge of 30.8% in 2016……..The United Kingdom had the 22nd lowest tax wedge in the OECD for an average married worker with two children at 25.8% in 2016,

So in theory we could if we wished to reach the peak that is Belgium. The Anglosphere ( US, Australia and Canada) if I can put it like that has similar numbers to the UK although the Kiwis stand out at only 17.9% for a single person. The lowest is Chile at 7%.

Interestingly with its debt and deficit problems income in Japan is slightly more taxed than here.

Comment

I would like to take a step back and consider the last couple of years. Remember the number of economists and media analysts who warned about what they called “deflation” and sometimes they shouted it so loud it was “DEFLATION”? Well it morphed into this.

By late-2014, an increase in nominal wage growth and low CPIH inflation, led to average real earnings increasing by 1.7% in the 18 months to mid-2016. ( Office for National Statistics).

This of course boosted the economy mostly via the retail sales boom but also in other ways as I pointed out on the 29th of January 2015.

However if we look at the retail-sectors in the UK,Spain and Ireland we see that price falls are so far being accompanied by volume gains and as it happens by strong volume gains. This could not contradict conventional economic theory much more clearly. If the history of the credit crunch is any guide many will try to ignore reality and instead cling to their prized and pet theories but I prefer reality ever time.

If there was a musical theme to the deflation paranoia then it was “clowns to the left of me, jokers to the right” from Stealers Wheel. Please do not misunderstand me I am talking about the so-called experts here not those influenced by them. Sadly we seem to be heading into a period where something they wanted ( higher inflation) will slow the economy down. I wonder how the inflationistas will spin that?

 

 

 

 

 

UK real wages fell in January ending over 2 years of growth

Today sees us receive the latest UK labour market data with the main emphasis being on wages as we mull how they will compare with inflation as 2017 progresses. The phase where low inflation boosted real wages is over for now at least as we cross our fingers and hope it will not rise too far. On that front we have had some better news from the recent dip in the price of crude oil but as a ying to that particular yang there has also been this.

In case you missed it, iron ore in China is up 10% since Monday. Cheers ( @DavidInglesTV )

On the usual pattern we would know the latest inflation data but that is not due until next week whilst our statisticians perhaps drink gin, play jigsaws whilst wearing a base layer and a cycle helmet.

Public-Sector Pay

This is something which has perhaps been too much in the background. For many who work in the public-sector wages have been under an austerity style squeeze for some time now. The area has also got more complex as many such jobs have been outsourced to private companies as for example many of the staff in Battersea Park work for a company called Enable now rather than Wandsworth Council. In terms of scale here are the numbers involved.

There were 5.44 million people employed in the public sector for December 2016. This was little changed compared with September 2016 and with a year earlier. Public sector employment has been generally falling since December 2009.

Although the picture gets ever more complex.

The Institute of Fiscal Studies has looked into the wages trend and point out that it is more complex than it may initially appear.

Public sector pay has been squeezed since public spending cuts began to take effect from 2011, and it looks set to be squeezed even further up to 2020. However, this comes on the back of an increase in public sector wages relative to those in the private sector during the Great Recession.

They think that this is set to continue for the rest of this decade.

On the basis of current forecasts and policy, we expect public sector pay to fall by 5 percentage points relative to private sector pay between 2015 and 2020. This would take the raw wage gap to its lowest level for at least 20 years.

However the starting point may not be what you would have expected.

In 2015–16, average hourly wages were about 14% higher in the public sector than in the private sector, according to the Labour Force Survey. After accounting for differences in education, age and experience, this gap falls to about 4%.

This is a complex area as we mull the usefulness of some type of education. For example by interest (athletics) I know people who specialise in the physiotherapy area where attainment is higher in that graduates are recruited but some for example have never manipulated someone’s back. Of course there is also the issue of pensions.

Reforms to public sector pensions have reduced the value of the pension public sector workers can expect to enjoy in retirement, though this is still probably more than private sector workers can expect

I do not know what the IFS has been smoking here as public sector pensions look ever more valuable in relative if not absolute terms to me.

Good News

This as so often these days comes from the quantity numbers in the labour market report.

There were 31.85 million people in work, 92,000 more than for August to October 2016 and 315,000 more than for a year earlier……..There were 23.34 million people working full-time, 305,000 more than for a year earlier. There were 8.52 million people working part-time, 10,000 more than for a year earlier.

The extra number of people in work helped reduce unemployment as well, oh and in case you assumed it was an obvious link it is not always that simple due to a category for inactivity.

There were 1.58 million unemployed people (people not in work but seeking and available to work), 31,000 fewer than for August to October 2016 and 106,000 fewer than for a year earlier………….The unemployment rate was 4.7%, down from 5.1% for a year earlier. It has not been lower since June to August 1975.

 Bad News

This was demonstrated by this on the wages front.

Latest estimates show that average weekly earnings for employees in Great Britain in nominal terms (that is, not adjusted for price inflation) increased by 2.2% including bonuses, and by 2.3% excluding bonuses, compared with a year earlier.

So we see a slowing from the 2.6% reported last time. If we look into the single month detail it is worrying as you see December was 1.9% and January 1.7% giving a clear downwards trend. If we look further we see that those months saw much lower bonus payments than a year before and in fact falls as for example -3.9% and -2.7% was reported respectively. Putting it another way UK average earnings reached £509 in November but were £507 in both December and January.

Ugly News

This comes from the position regarding real wages.

Comparing the 3 months to January 2017 with the same period in 2016, real AWE (total pay) grew by 0.7%, which was 0.7 percentage points smaller than the growth seen in the 3 months to December 2016.

There has been something of a double whammy effect at play here as inflation has risen as we expected but sadly wage growth has dipped as well. So the period since October 2014 when real wages on the official measure began to rise is certainly under pressure and frankly seems set to end soon.

If we look at January alone then real wages were 0.1% lower than a year before as inflation was 1.8% and using the new headline measure ( from next month) they fell by 0.3% on a year before. Using the Retail Price Index or RPI has real wages falling at an annual rate of 0.9% in January.

Comment

There are quite a few things to laud about the better performance of the UK economy over the past few years as employment has risen and unemployment fallen. Although of course we would like to know more ( indeed much more…) about the position relating to underemployment which is one of the factors at play in the situation below.

The number of people employed on “zero-hours contracts” in their main job, according to the LFS, during October to December 2016 was 905,000, representing 2.8% of all people in employment. This latest estimate is 101,000 higher than that for October to December 2015 (804,000 or 2.5% of people in employment).

For a while this was also true of real wages although to be fair the situation here mostly improved due to lower levels of recorded consumer inflation. Sadly if the data for January is any guide that happier period is now over even using the official inflation data.Of course this also omits the ever growing self-employed sector.

City-AM

Here are my views on US interest-rates from today’s City-AM newspaper

 

 

Would the Bundesbank of Germany raise interest-rates if it could?

At the heart of the Euro area economy is Germany but as we have discussed before it has something of an irregular heartbeat in the way it affects its Euro area partners. For example as I pointed out on the 9th of January it is a deflationary influence on them via its balance of payments surplus.

In November 2016, Germany exported goods to the value of 63.2 billion euros to the Member States of the European Union (EU), while it imported goods to the value of 56.9 billion euros from those countries.

One does not wish to be critical of it for its relative economic success but there are clear side-effects as well as benefits from it. One is the trade position above another is that fact that its membership of the Euro makes its exchange-rate higher.. For all the talk and indeed promises of economic convergence the fact is that many Euro area countries have economies with little in common with Germany. For example later this year Italy seems likely to move into economic growth territory for its membership of the Euro which is very different to the German situation. Let us investigate the German economy.

Inflation

On Wednesday this was released by the Federal Statistics Office.

The inflation rate in Germany as measured by the consumer price index is expected to be 2.2% in February 2017. Such a high rate of inflation was last measured in August 2012. Based on the results available so far, the Federal Statistical Office (Destatis) also reports that the consumer prices are expected to increase by 0.6% on January 2017.

The Euro area standard measure was also 2.2% although it rose by 0.7% on the month. We have a complete switch on the disinflationary period just passed which showed low and at times falling inflation for goods prices as they rose by 3.2%. These were led by energy at 7.2% and food at 4.4%.

This was reinforced only yesterday by this.

the index of import prices increased by 6.0% in January 2017 compared with the corresponding month of the preceding year. This was the highest increase of a yearly rate of change since May 2011 (+6.3%). In December and in November 2016 the annual rates of change were +3.5% and +0.3%, respectively. From December 2016 to January 2017 the index rose by 0.9%.

As you can see there are inflationary pressures in the system and it looks as though imported raw materials will impact the system especially the price of oil which was approximately half the rise. If German economic policy was set by the Bundesbank then there is no way it would have a negative interest-rate in the face of such pressure.

Consumption

This has traditionally been a weaker link in the German economy and that seems to be continuing as the numbers below have an extra day in them compared to last year.

According to provisional data turnover in retail trade in January 2017 was in real terms 2.3% and in nominal terms 4.5% larger than that in January 2016.

We do get a like for like update on a monthly basis.

Calendar and seasonally adjusted (Census X-12-ARIMA), sales in January 2017 were 0.8% lower than in December 2016 and 0.2% lower in nominal terms.

If we look back to 2010 and mark it at 100 we see that January 2017 was at 106.1 which shows the German economy is not powered by retail sales.

Economic output

This has been a better phase for Germany as this official data shows.

The economic situation in Germany in 2016 thus was characterised by solid and steady growth (+0.7% in the first quarter, +0.5% in the second quarter and +0.1% in the third quarter). For the whole year of 2016, this was an increase of 1.9% (calendar-adjusted: +1.8%).

I am not sure that 0.7%,0.5%, 0.1% and then 0.4% is steady but it was solid! To be fair it was more consistent in annual terms although if we look further at the year it had a feature you might not expect.

government final consumption expenditure was up by as much as 3.2%.

Also Germany did shift a little in terms of one of the world economic issues which is the balance of payments surplus.

exports of goods and services rose by 3.3% compared with the previous year. There was however a larger increase in imports (+4.5%) in the same period. Consequently, the balance of exports and imports had a downward effect, in arithmetical terms, of –0.2 percentage points on GDP growth compared with the previous year.

There was also another sign of a German economic strength ticked away there.

the economic performance in the fourth quarter of 2016 was achieved by 43.7 million persons in employment, which was an increase of 267,000, or 0.6%, on a year earlier.

This performance allowed the headline writers some click bait. From the Guardian.

Germany overtook the UK as the fastest growing among the G7 states during 2016. Europe’s largest economy expanded at the fastest rate in five years, showing growth of 1.9% last year.

Of course the numbers are not precise to 0.1% after all if they were then this adjustment from 2014 as matters such as military expenditure and Research and Development saw new rules would not be necessary.

The conceptual changes have led to an increase in the level of the German GDP, amounting to roughly 3%

Public Finances

These were very strong in spite of the rise in spending.

A strong economic backdrop has helped Germany post a record budget surplus of €23.7bn in 2017 ( they mean 2016), fuelled by higher tax revenues, rising employment and low debt costs. It was the highest budget surplus since reunification in 1990 and the third successive year the government has had a budget surplus.

The old argument is of course that it would help the European and world economy if Germany loosened the public purse strings. This would also presumably reduce the balance of payments surplus in a beneficial double-whammy. The catch in terms of Euro area rules is that the national debt to GDP ratio is at 69.4% above the (supposed) 60% limit although of course rather good compared to the vast majority of its peers.

Looking ahead

The immediate future certainly looks bright for German manufacturing.

The PMI rose from 56.4 in January to 56.8 in February, the highest since May 2011. The increase in the headline figure reflected the output, new orders and suppliers’ delivery times components, while employment and stocks of purchases also made positive overall contributions. The current 27-month sequence of improving manufacturing conditions is the longest observed in over eight-and-a-half years. (Markit)

This led to an improvement also in forecasts for the year as a whole.

The survey results suggest that manufacturing will contribute to a strengthening in overall economic growth in the first quarter. IHS Markit currently expects q/q growth of at least 0.6% in Q1, up from 0.4% in Q4 last year, and is forecasting a 1.9% rise in GDP over 2017 as a whole.”

This has been reinforced by the service sector survey which has just been released.

the rate of expansion in total business activity accelerated and was slightly stronger than the trend shown over 2016 as a whole. Moreover, new business rose at the fastest rate since February 2016 and employment growth was the strongest since June 2011.

Comment

Let me leave you all with a question. The US Federal Reserve is hinting ever more strongly at an interest-rate rise this month although of course we await th words of Janet Yellen later. But in 2016 the German economy grew more quickly than the US one and may well do so this year. It also has inflation above target. Where would German interest-rates be if the Bundesbank was back in charge?

If you want a real mind game then imagine where a new German Mark would be and the implications from that?!

 

 

 

 

The unemployment rate in France continues to signal trouble

It is time for us to nip across the Channel or perhaps I should say La Manche and take a look at what is going on in the French economy. This morning has brought news which reminds us of a clear difference between the UK and French economy so let us get straight to the French statistics office.

In Q4 2016, the average ILO unemployment rate in metropolitan France and overseas departments stood at 10.0% of active population, after 10.1% in Q3 2016.

Thus we note immediately that the unemployment rate is still in double-digits albeit only just. Here is some more detail.

In metropolitan France only, the number of unemployed decreased by 31,000 to 2.8 million people unemployed; thus, the unemployment rate decreased by 0.1 percentage points q-o-q, standing at 9.7% of active population. It decreased among youths and persons aged 50 and over, whereas it increased for those aged 25 to 49. Over a year, the unemployment rate fell by 0.2 percentage points.

So unemployment is falling but very slowly and it is higher in the overseas departments. It is also rising in what you might call the peak working group of 25 to 49 year olds. It was only yesterday we noted that the UK unemployment rate was much lower and in fact less than half of that above.

the unemployment rate for people was 4.8%; it has not been lower since July to September 2005

Thus if we were looking for the key to French economic problems it is the continuing high level of unemployment. If we look back to pre credit crunch times we see that it was a little over 7% it then rose to 9.5% but later got pushed as high as 10.5% by the consequences of the Euro area crisis and has only fallen since to 10% if we use the overall rate. Thus we see that there has only been a small recovery which means that another factor is at play here which is time. A lot of people will have been unemployed for long periods with it would appear not a lot of hope of relief or ch-ch-changes for the better.

Among unemployed, 1.2 million were seeking a job for at least one year. The long-term unemployed rate stood at 4.2% of active population in Q4 2016. It decreased by 0.1 percentage points compared to Q3 2016 and Q4 2015.

The long-term unemployment rate is not far off what the total UK unemployment rate was for December (4.6%) which provides a clear difference between the two economies. Here is the UK rate for comparison.

404,000 people who had been unemployed for over 12 months, 86,000 fewer than for a year earlier

It is not so easy to get wages data but the non-farm private-sector rise was 1.2% in the year to the third quarter. So there was some real wage growth but I also note the rate of growth was slowing gently since the peak of 2.3% at the end of 2011 and of course inflation is picking up pretty much everywhere as the US “surprise” yesterday reminded pretty much everyone, well apart from us. Unless French wage growth picks up it like the UK will be facing real wage falls in 2017.

Productivity

There is an obvious consequence of the UK producing a broadly similar output to France with a lower unemployment rate if we note that productivity these days is in fact labour productivity. There are always caveats in the numbers but the UK Office for National Statistics took a look a year ago.

below that of Italy and France by 14 and 15 percentage points respectively ( Final estimates for 2014 show that UK output per worker was:)

My worry about these numbers has always been Japan which for its faults is a strong exporter and yet its productivity is even worse than the already poor UK.

above that of Japan by 14 percentage points

Economic growth

This remains poor albeit with a flicker of hope at the end of 2016.

In Q4 2016, GDP in volume terms* accelerated: +0.4%, after +0.2% in Q3. On average over the year, GDP kept rising, practically at the same pace: +1.1% after +1.2% in 2015. Without working day adjustment, GDP growth amounts to +1.2 % in 2016, after +1.3 % in 2015.

However the pattern is for these flickers of hope but unlike the UK where economic growth has been fairly steady France sees quite wide swings. For example GDP rose by 0.6% in Q1 so the economy pretty much flatlined in Q2 and Q3 combined. Whether this is a measurement issue or the way it is unclear. We do know however that it seems to come to a fair extent from foreign trade.

All in all, foreign trade balance contributed slightly to GDP growth: +0.1 points after −0.7 points. ( in the last quarter of 2016).

But as we look for perspective we do see an issue as for example 2016 should have seen two major benefits which is the impact of the lower oil price continuing and the extraordinary stimulus of the ECB ( European Central Bank). Yet economic growth in 2015 and 2016 were both weak and show little signs of any great impact. If we switch to the Euro then its trade weighted value peaked at 113.6 in November 2009 and has fallen since with ebbs and flows to 93.5 now so that should have helped overall. In the shorter term the Euro has rotated around its current level.

Production

With its more dirigiste approach you might expect the French economy to have done better here but as I have pointed out before that is not really so. If we look at manufacturing France saw growth in 2016 but we see a hint of trouble in the index for it being 103 at the end of 2016 on an index based at 100 in 2010. So overall rather weak and poor growth. Well it is all rather British as we note the previous peak was 118.5 in April 2008. Actually with its 13% decline that is a lot worse than the UK.

manufacturing (was) 4.7% lower when compared with the pre-downturn peak in February 2008.

Of course there are also links as the proposed purchase of Opel ( Vauxhall in the UK) by Peugeot reminds us.

Oh and those mulling the de-industrialisation of the West might want to note that the French manufacturing index was 120.9 back in December 2000.

Debt and deficits

This has received some publicity as Presidential candidate Fillon said this only yesterday. From Bloomberg.

Reviving a statement he made after becoming prime minister in 2007, Fillon said France is essentially bankrupt and warned that it can face situations comparable to those of Greece, Portugal and Italy. “You think it can’t happen here but it can,” he said.

As to the figures the fiscal deficit at 3.5% of GDP is better than the UK but of course does fall foul of the Euro area 3% limit. The national debt to GDP ratio is 97.5% and has been rising. On the 7th of this month I pointed out that France could still borrow very cheaply due to the ECB QE program but that relative to its peers it was slipping. That has been reinforced this week as for the first time for quite a while the Irish ten-year yield fell to French levels.  It may seem odd to point this out on a day when France has been paid to issue some short-tern debt but the situation has gone from ultra cheap to very cheap overall and there is a cost there.

Comment

I pointed out back on the 2nd of November last year that there were more similarities between the UK and French economies than we are often told but that there are some clear differences. We have looked at the labour market today in detail but there is also this.

There is much to consider here as we note that for France the new economic growth norm seems to be 1% rather than the 2% we somewhat disappointedly recognise for ourselves. Over time if that persists the power of compounding will make it a big deal.

Oh and of course house prices if we look at the UK boom which began in the middle of 2013 we see that France has in fact seen house prices stagnate since then as the index was 103.03 ( Q2 2013) back then compared to 102.82 in the third quarter of 2016

The recent economic success of Spain makes a refreshing change

Back in the days of the Euro area crisis Spain found itself being sucked into the whirlpool. The main driver here was its housing market and the way that it had seen an enormous boom which turned to dust. Pick your theme as to whether you prefer empty towns or an airport that was never used. If we look back to my post yesterday on GDP I immediately find myself thinking that developments which are never used should be counted in a separate category. Of course the housing problems also caused trouble for the Spanish banks.

GDP

We do not yet have the data for the latest quarter but in recent times short-term forecasts by the Bank of Spain have been pretty accurate.

In Spain, economic activity has continued to post a high rate of increase in recent months. Specifically, in Q4, GDP is expected to have grown by 0.7%, unchanged on the rate observed in Q3 (see Chart 1) and underpinned by the strength of domestic spending.

We do have a link in that Spain seems to follow the pattern of the UK economy more than many of its Euro area neighbours and hence there might be for once some logic in using the same currency. But the main point is that such growth would continue what has been a much better phase for Spain. This meant that the official data for the third quarter told us this.

 Growth in relation to the same quarter of the previous year stood at 3.2%,

If we look back we see that the Spanish economy was hit hard by the initial impact of the credit crunch with the peak quarterly contraction being of the order of 1.5% of GDP. Then the economy bounced back but was then sent into decline as the Euro area crisis raged and quarterly economic growth did not turn positive again until 2013 moved in to 2014. However since then economic growth has been strong. If the fourth quarter does turn out to be 0.7% then it will follow 0.7%, 0.8%,0.8%,0.8%,0.9%,0.8% and 1%. Maybe a minor fading but I think that would be harsh on a country which has put in a strong performance.

If we look back for some perspective then let us compare with what sadly is often the laggard which is Italy. From Spain’s Royal Institute.

the contrast between cumulative growths is significant: 50% since 1997 in Spain versus 10% in Italy. Moreover, according to EU forecasts, in 2018 Spain will surpass Italy in per capita GDP (in PPP terms) for the first time ever.

Employment

The Euro area crisis has been characterised by high levels of unemployment so it was nice to see this in the GDP report of Spain.

In annual terms, employment increases at a rate of 2.9%, one tenth more than in The second quarter, which represents an increase of 499 thousand jobs
Equivalent to full-time in one year.

Yesterday we got a further update on this front from Spain’s statistics agency.

Employment has grown in 413,900 people in the last 12 months. The annual rate is 2.29%……….In the last year employment has risen in all sectors: in the Services there are 240,400 more occupied, in Industry 115,700, in Agriculture 37,000 and in Construction 20,800.

Not everything was perfect as the numbers dipped by 19,400 on a quarterly basis but overall the performance has been such that we can report this.

The number of unemployed falls this quarter in 83,000 people (-1.92%) and is in 4,237,800. In seasonally adjusted terms, the quarterly variation is -3.78%. In The last 12 months unemployment has decreased by 541,700 people (-11.33%).

Or if you prefer.

The unemployment rate stands at 18.63%, which is 28 cents lower than in The previous quarter. In the last year this rate has fallen by 2.26 points.

So we have a ying of lower unemployment combined with a yang of the fact that it is still high. If we return to the comparison with Italy then according to the Royal Institute the situation is better than it first appears to be.

From 1990 to 2014 female participation has risen from 34% to 53% in Spain and from 35% to only 40% in Italy (seeWorld Bank data). Hence, although there is a much lower unemployment rate in Italy, the latter’s inactivity rate is much higher than Spain’s.

The other point I would make is that whilst it is pleasing that Spain is creating more jobs the fact that the growth rate in them is similar to the economic growth means that it too will have its productivity worries.

Looking ahead

The Bank of Spain is reasonably optimistic in its latest Bulletin.

Hence, after standing in 2016 at 3.2% (the same rate as that observed a year earlier), average GDP growth is expected to ease to 2.5% in 2017 (see Table 1). In 2018 and 2019, the estimated increase in output would stand at 2.1% and 2%, respectively.

As to the private-sector business surveys Markit tells us this about services.

Rate of expansion in activity remains marked in December

And this about manufacturing.

The Spanish manufacturing PMI signalled that the sector ended 2016 on a high, with growth back at the levels seen at the start of the year.

Fiscal Position

The situation here has been summed up by El Pais this morning like this.

After missing its deficit targets for five straight years, Spain on Thursday made a commitment in Brussels to make additional adjustments “if necessary.”

If you look at its economic performance you might be wondering if Spain got it right although of course that is far from the only issue at hand. The current state of play is shown below.

Spain believes that the tax hikes slapped on companies, alcohol, tobacco and sugary drinks, as well as rises in a range of green taxes – together with strong economic growth – will be enough to keep the deficit at 3.1% of GDP. But Brussels is forecasting 3.3% instead.

If we move to the national debt it is in the awkward situation it has breached the 100% of GDP barrier. The reason this is awkward is that as described Spain has seen good levels of economic growth and the ECB has bought a lot of Spanish government debt keeping debt costs relatively low. It has bought some 150.3 billion Euros worth so far as of the end of last week and the ten-year yield is at 1.6% meaning that in spite of recent rises debt costs are very low. Thus the ratio has risen at a time when two favourable winds have been blowing in Spain.

House Prices

As this was a signal last time I can report that as of the end of the third quarter they were rising at an annual rate of 4% so relatively moderate by past standards. However as the last quarter of 2015 saw a quarterly 0% this seems set to rise. Price rises may also be capped by the fact that the bad bank Sareb is selling off some of the stock that it inherited ( believed to be around 105,000 homes). Mind you there does appear to be considerable rental inflation if this from The Spanish Brick is any guide.

The price of rental dwellings has increased in Spain by 5.8% during the second quarter of 2016, being the price of the square meter 7.8 euros per month. On an inter-annual rate, it is an 8.5% increase, according to the main property portal in Spain. ( BankInter)

Comment

There has been plenty of good economic news for Spain in recent times and we should welcome that. After all it makes a nice change from the many down beat stories that are around. But if we use the phrase “escape velocity” so beloved of Bank of England Governor Mark Carney we see that work remains to be done. If we look back and set 2010 at 100 then GDP peaked at 104.4 in the second quarter of 2008 but only reached 102.4 in the third quarter of 2016 so another just under 2% is required to scale the previous peak. Spain will need to do that relatively quickly to prevent a type of “lost decade” but even as it does so, which I expect it to do it then looks back on a decade which overall has been a road to nowhere overall.

Should Spain continue to follow the British economic pattern then worries for the UK of rising inflation affecting the economy may have a knock-on effect. As to literal links the UK Office for National Statistics has helped out a little today.

Spain is host to the largest number of British citizens living in the EU (308,805); just over a third (101,045) of British citizens living in Spain are aged 65 years and over.

UK real wage growth is even worse if you factor in house price growth

After yesterday’s higher inflation data and it was across the board as the annual rate of hose price inflation increased as well we move to the labour market today and in particular wages. Unless we see a surge in wage growth in the UK real wages are set to fade and then go into decline this year but before we get to them we have another source of comparison. Something which immediately has us on alert as it will cheer the Bank of England.

Wealth

This is what the Bank of England would call this from the Financial Times today.

The value of all the homes in the UK has reached a record £6.8tn, nearly one-and-a-half times the value of all the companies on the London Stock Exchange. A rapid rise in the value of the housing stock, which has increased by £1.5tn in the past three years, has created an unprecedented store of wealth for Londoners, over-50s and landlords, according to an analysis by Savills, the estate agency group.

It will be slapping itself on the back for the success of its Funding for (Mortgage) Lending Scheme or FLS which officially was supposed to boost bank lending to smaller businesses but of course was in reality to subsidise bank property lending.  The FLS does not get much publicity now but there is still some £61 billion of it around as of the last quarterly update, since when some has no doubt been rolled into the new Term Funding Scheme. Oh yes there is always a new bank subsidy scheme on the cards.

Whilst the Bank of England will continue to like the next bit those with any sort of independent mind will start to think “hang on”.

As well as rising sharply in nominal terms, housing wealth has grown in relation to the size of the economy: it was equivalent to 1.6 times Britain’s gross domestic product in 2001, rising to 3.3 times in 2007 and 3.7 times in 2016.

Only on Tuesday night Governor Carney was lauded for his work on “distributional issues” but here is a case of something he and the Bank of England have contributed to which is a transfer from first time buyers and those climbing the property ladder to those who own property.

If we move to wages then the UK average is still around 6% below the previous peak which poses a question immediately for the wealth gains claimed above. Indeed last November the Institute for Fiscal Studies suggested this.

Britons face more than a decade of lost wage growth and will earn no more by 2021 than they did in 2008 ( Financial Times).

There has been an enormous divergence here where claimed housing wealth has soared whilst real wages have in fact fallen. That is not healthy especially as the main age group which has gained has benefited in other areas as well.

The income of those aged 60 and over was 11 per cent higher in 2014 than in 2007. In contrast, the income of households aged 22-30 in 2014 was still 7 per cent below its 2007 level. The average income of households aged 31-59 was the same in 2014 as in 2007.

As an aside some of the property numbers are really rather extraordinary.

The value of homes in London and south-east England has topped £3tn for the first time, meaning almost half the total is accounted for by a quarter of UK dwellings. This concentration of wealth is most evident in the richest London boroughs, Westminster and Kensington & Chelsea, where housing stock adds up to £232bn, more than all of the homes in Wales, according to analysis based on official data.

Another shift was something I noted yesterday which was the fall in house prices seen in Northern Ireland where wealth under this measure has declined sharply. Has that influenced its political problems? However you look at it there has been a regional switch with London and the South-East gaining. Also there is a worrying sign for UK cricketer Jimmy Anderson or the “Burnley Lara”.

Likewise, homes in Burnley, Lancashire, declined in value over five years, even as most of the UK market boomed.

One area where care is needed with these wealth numbers is that a marginal price ( the last sale for example) is used to value a whole stock which is unrealistic.Before I move on there is another distributional effect at play although the effect here is on incomes rather than wages as Paul Lewis reminds us.

As inflation rises to 1.6%/2.5% the policy of freezing working age benefits for four years becomes less and less sustainable.

Before we move on the Resolution Foundation has provided us with a chart of the nominal as in not adjusted for inflation figures.

 

Today’s Data

The crucial number showed a welcome sign of improvement.

Average weekly earnings for employees in Great Britain in nominal terms (that is, not adjusted for price inflation) increased by 2.8% including bonuses and by 2.7% excluding bonuses compared with a year earlier……average total pay (including bonuses) for employees in Great Britain was £509 per week before tax and other deductions from pay, up from £495 per week for a year earlier

So a pick-up on the period before of 0.2% and at we retain some real wage growth which helps to explain the persistently strong retail sales data.

Comparing the 3 months to November 2016 with the same period in 2015, real AWE (total pay) grew by 1.8%, which was 0.1 percentage points larger than the growth seen in the 3 months to October. Nominal AWE (total pay) grew by 2.8% in the 3 months to November 2016, while the CPI increased by 1.2% in the year to November.

There is obviously some rounding in the numbers above and the inflation measure used is around 1% lower than the RPI these days.

If we move to the detail we see that average earning also rose by 2.8% annually in the year to the month of November alone and the areas driving it were construction (5%) and wholesale and retail (4.2%). Sadly the construction numbers look like they might be fading as they were 8.8% but the UK overall has just seen tow strong months with 2.9% overall wage growth in October being followed by 2.8% in November.

Employment and Unemployment

The quantity numbers continue their strong trend.

There were 31.80 million people in work, little changed compared with June to August 2016 but 294,000 more than for a year earlier…….There were 1.60 million unemployed people (people not in work but seeking and available to work), 52,000 fewer than for June to August 2016 and 81,000 fewer than for a year earlier.

The next number might be good or bad.

Total hours worked per week were 1.02 billion for September to November 2016. This was 1.2 million fewer than for June to August 2016 but 4.8 million more than for a year earlier.

The fall may be troubling but as the economy grew over this period ( if the signals we have are accurate) might represent an improvement in productivity.

It is nice that the claimant count fell in December “10,100 fewer than for November 2016” but I am unsure as to what that really tells us.

Comment

We have seen today some good news which is a pick-up in the UK official wages data. This will help real wages although sadly seems likely to be small relative to the inflation rise which is on its way. However if we widen our definition of real wages we see that the credit crunch era has brought quite a problem. This is that the claimed “wealth effects” from much higher house prices make them look ever higher in real terms as we return to the argument as to how much of the rise is economic growth and how much inflation.

My view is that much of this is inflationary and that once we allow for this then we start to wonder how much of an economic recovery we have seen in reality as opposed to the official pronouncements.

Also we have my regular monthly reminder that the wages figures exclude the self-employed and indeed smaller businesses.

What a carry on from Bank of England Governor Carney

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.

 

Today’s Data

Employment

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.

Unemployment

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.

Wages

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%.

Comment

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?