Today brings new data on what is the most important economic number in the UK right now. This has been added to by the way that some Bank of England policymakers has plugged what some might call a bigly improvement in UK wage growth. Although of course you could say there is an element of deja vu all over again in that. But the issue did come up yesterday at the Treasury Select Committee interviews. This is the new policymaker Silvana Tenreyro quoted in the Guardian.
My position now is that if the data outturns are consistent with the picture i’ve just described, of an output gap going towards zero, then i would be minded to vote for a bank rate increase in the coming months.
The “output gap going towards zero” would be signalled by a sustained increase in wage growth. It used to be signalled also by the unemployment rate but the Bank of England has been in disarray on that subject since its Forward Guidance highlighted a 7% unemployment rate as significant. It is also very disappointing to see a policymaker continuing with the “output gap” theory which has failed so utterly in the credit crunch era but I guess that is simply a consequence of recruiting from an Ivory Tower. Also it seems that she knows better than the Bank of England’s own research on the subject of QE.
It’s far from evident that QE has contributed to higher inequality ( h/t Positive Money).
And whilst some loved it as it suited their particular views this was none too bright. Her words from the Financial Times about her suitability for the role.
I grew up in a developing country, subject to many crises
The pay squeeze
There is a nice chart showing the position from the Resolution Foundation albeit that it underplays the situation by being one of the few places that takes the CPIH ( H = Imputed Rents) inflation measure seriously.
There is the obvious issue that real wages have fallen according to the official data but there are two other consequences which pose problems for both the Bank of England and the Ivory Towers. Firstly as we have had nearly five years of economic growth the last shaded area should simply not exist as the claimed “output gap” seems to be operating both inversely and perversely. Also real wage growth did best in the period when inflation was low suggesting that it would be better to keep inflation low rather than aiming at a target of 2% annual growth in the Consumer Prices Index or CPI. Even worse of course the Bank of England helped to drive current inflation higher with its promises of “muscular” monetary easing post the EU leave vote which it acted upon in August 2016.
These do not matter for the official wages series as they are simply ignored as are smaller businesses. If I remember correctly the cut-off point is twenty employees. This has been an issue of increasing significance in the credit crunch era as the number of self-employed has risen especially as it approaches the same number as those who work in the public-sector.
self-employed people increased by 70,000 to 4.86 million (15.1% of all people in work)
There has been some potentially better news for self-employed earnings in the latest revisions to the UK economic data set. From Monday.
In 2016, the Blue Book 2017 dividends income from corporations is £61.7 billion, compared with £12.2 billion for households and NPISH as previously published
As this follows other revisions in this area we see two things. Firstly that we have no reliable up to date data on the subject and secondly we have just been through a spell where dividend income was massively underestimated. So the news for the self-employed may well have been better than it may have appeared to be. Of course such large revisions whilst signs of a welcome look into the issue also pose questions about the credibility of the data.
The numbers here continue to be very good.
There were 32.10 million people in work, 94,000 more than for March to May 2017 and 317,000 more than for a year earlier……..The employment rate (the proportion of people aged from 16 to 64 who were in work) was 75.1%, up from 74.5% for a year earlier……..Between March to May 2017 and June to August 2017, total hours worked per week increased by 4.6 million to 1.03 billion.
This has had a consequence for those out of work too.
There were 1.44 million unemployed people (people not in work but seeking and available to work), 52,000 fewer than for March to May 2017 and 215,000 fewer than for a year earlier. The unemployment rate (the proportion of those in work plus those unemployed, that were unemployed) was 4.3%, down from 5.0% for a year earlier and the joint lowest since 1975.
So good news on this front with the only caveat being that we find out little about any issues with underemployment.
Average earnings or Quality
The Ivory Towers will be expecting a surge in wages as the “output gap” in the labour market continues its collapse. So let us take a look.
Between June to August 2016 and June to August 2017, in nominal terms, total pay increased by 2.2%, the same as the growth rate between May to July 2016 and May to July 2017.
So yet again they are disappointed. Actually as July was a weak month ( 1.4%) then August must have been better but I cannot say how much at this stage as the Office of National Statistics has forgotten to update the data set. Perhaps bonuses bounced back as we mull the (non)sense of monthly figures in this area.
If we move onto real wages we see this.
Comparing the three months to August 2017 with the same period in 2016, real AWE (total pay) fell by 0.3%, the same as the three months to July 2017. Nominal AWE (total pay) grew by 2.2% in the three months to August 2017, while the CPIH increased by 2.7% in the year to August 2017.
So we have seen yet another small decline in the official series for real wages with the caveat that the situation is worse if you use other inflation measures such as CPI and particularly the Retail Prices Index.
What we see yet again is quite remarkable stability in the UK labour market where employment rises but wage growth is weak considering that. For wages the summary of the Bank of England Agents continues to be accurate.
Growth in labour costs per employee had been subdued, with settlements clustered around 2% to 3%. Recruitment difficulties remained elevated, with conditions becoming very tight for some skills.
The Bank of England faces two problems here. Firstly its theoretical basis has all the stability of the Titanic and secondly there is the issue of its promised interest-rate rise. It is not the fact of one which is an issue it is the timing as why now and not before as not much has changed? On that road the monetary easing of August 2016 looks ever more a panic move.
Meanwhile the underlying picture for real wages continues on its not very merry way.
average total pay (including bonuses) for employees in Great Britain was £488 per week before tax and other deductions from pay, £34 lower than the pre-downturn peak of £522 per week recorded for February 2008