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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How does UK employment rise but hours worked fall?

This week has brought with it news of a surge in UK wages but sadly for the rest of us it is only for one person. From the Guardian.

Sánchez’s four-and-a-half-year contract ties him to United until the summer of 2022. It is understood his salary is closer to a basic £300,000 a week than the reported £500,000. This means he is, with Zlatan Ibrahimovic, the club’s highest remunerated player.

We are of course looking at the wages of Alexis Sanchez which are supposed to be too high even for Manchester City but not for their neighbours. Actually if we add in the agent of Alexis Sanchez and any other hangers-on we do at least have more than one person benefiting from this. Whatever you might think of the economics of premiership football and it is easy to make a case for it being more inflated than even the modern era football itself it is providing a boost for the UK economy as this from the BBC this week highlights.

Manchester United have topped the table of the world’s 20 richest football clubs for the second year in a row, and 10th time overall, says Deloitte…….Manchester United’s €676m revenues were boosted by €44.5m from Uefa after winning the Europa League against Ajax…..There were a record 10 English Premier League clubs in the top 20. The number in the top 30 was up from 12 to 14.

Maybe it is the performance so far this season influencing me but I was surprised by this part.

Southampton are the only debutant in the top 20 after broadcast revenues soared.

That makes you wonder why they are always selling players doesn’t it?

Changes over time

According to the Resolution Foundation there has been something going on and it started well before the credit crunch hit.

A change in working hours is driving this change, but there are two factors at play. The first is the large increase in the number of male employees working part-time, which has risen from 8.1 per cent in 1997 to 11.7 per cent in 2017. The second driver of the ‘hollowing out’ of male pay over the last two decades is the reduction in average hours worked by the lower-paid (in terms of hourly pay) – over and above the shifting balance between full-time and part-time working. The average number of hours worked by full-time men earning around two-thirds of male median hourly earnings fell from 44.3 hours in 1997 to 42.2 hours in 2016. At the same time hours worked increased for higher paid men. As a result of this change lower-paid men no longer work more hours than their higher-paid counterparts.

As we mull the illogic in those who are at the bottom end of the pay spectrum working fewer hours we are left wondering one more time how much underemployment there is.

 Among part-time employees in the bottom fifth of the male weekly earnings distribution, 27 per cent would like full-time work compared to 8 per cent of those in the top fifth. Under-employment (people wanting more hours) is also concentrated amongst lower earners.

Sadly the official UK data releases tell us much less about underemployment than we would like to know.

Pressure pressure

We get regular reports of pay pressure but this so far has not filtered into the headline official data. An example of this was provided by The Independent yesterday.

The FMB, in its quarterly report on the state of the industry, found that companies are particularly struggling to recruit bricklayers and carpenters. Demand for skilled plumbers, electricians and plasterers is also outstripping supply……As a result of the skills gap, the FMB said that wages are rising sharply for skilled tradespeople.

So there is evidence for some wage pressure in that sector which must be awkward for a news source which regularly assures us immigration does not affect wages. “Without skilled labour from the EU, the skills shortages we face would be considerably worse” seems to tell a different story.

What was especially interesting about the CBI ( Confederation of British Industry) manufacturing survey yesterday was the absence of a mention of wage pressure.

Employment grew at the fastest pace since July 2014 over the last three months, with further growth expected next quarter. However, skill shortages are high on firms’ agendas, with the number of firms citing skilled labour as a factor likely to limit output over the next three months the highest for more than four decades.

Today’s data

What we saw was a continuation of what over the past few years has been a strength of the UK economy.

For September to November 2017, there were 32.21 million people in work, 102,000 more than for June to August 2017 and 415,000 more than for a year earlier.

The previous concerns over new employment/ work being part-time ( and hence likely to be lower paid) has reduced considerably as you can see.

The annual increase in the number of people in employment (415,000) was mainly due to more people in full-time employment (401,000).

Yet if we switch to wages we see little sign of change in yet another disappointment for the Bank of England with its “output gap” style thinking.

Between September to November 2016 and September to November 2017, in nominal terms, regular pay increased by 2.4%, little changed compared with the growth rate between August to October 2016 and August to October 2017 (2.3%)……….Between September to November 2016 and September to November 2017, in nominal terms, total pay increased by 2.5%, unchanged.

This means that the picture for real wages was pretty much unchanged as well with a small fall if you use the official CPIH series but something which is over 1% per annum higher if you use the Retail Price Index or RPI.

We get a different perspective if we look at hours worked as you can see below.

Between June to August 2017 and September to November 2017, total hours worked per week decreased by 4.9 million to 1.03 billion..

Only a small fall but much more significant if we remind ourselves that an extra 102,000 people were contributing to the hours worked. We will have to see how this plays out because one version could argue that underemployment is rising the other is that as the economy is growing we are improving productivity and thus should (hopefully) see higher wages going forwards. I suppose as this is the credit crunch era we should not be too amazed if we end up seeing elements of both! At least we will not be like Reuters who always present good UK economic news like this.

 The number of people in work in Britain surged unexpectedly in the three months to November

Comment

If we look at the recent UK economic experience we see that there have been gains since around 2012 particularly in employment. Yet to the chagrin of economics 101 the wage growth so confidently predicted by it 101 is still missing and we have moderate wage growth and falling real wages with employment at record highs. Maybe a partial reason is that many individual experiences are different to the collective as seen by averages as this from Sarah Connor in the Financial Times hints at.

When I hear about “continuous change”, I think of the husband of a woman I interviewed last year: a British man who lost his job more than a decade ago after the car factory where he worked closed down. Since then, he has been hired and made redundant 10 times. Is he resilient and willing to learn? Yes. Has it been enough? No.

Perhaps the official surveys miss his like in the same way that the official wages data still shamefully excludes the self-employed and small-size employers. That omission has got worse as the number of self-employed has grown in recent years and now totals 4.77 million. Somehow on that road we find ourselves noting that real wages are still some 6% below the previous peak.

average total pay (including bonuses) for employees in Great Britain was £489 per week before tax and other deductions from pay, £33 lower than the pre-downturn peak of £522 per week recorded for February 2008

Maybe another factor is another even longer-term trend seen by the UK economy.

Looking at a longer-term comparison, between June 1978 (when comparable records began) and September 2017: the proportion of jobs accounted for by the manufacturing and mining and quarrying sectors fell from 26.4% to 7.8%…….the proportion of jobs accounted for by the services sector increased from 63.2% to 83.4%.

 

 

 

 

Of UK wages, robotics and the gig economy

Today we advance on the UK wages data knowing that the pick-up in inflation we have been expecting is now coming to fruition. Albeit that today’s wages numbers only bring us up to date of the 3 months to October so we will be experiencing lagged data. Yesterday also reminded us of two things. Firstly how poor the economics profession has become at predicting inflation and that there is invariably an “Early Wire” of them in currency markets as some find themselves being more equal than others. Interestingly the economist Douglas McWilliams has put up a defence this morning.

….and most people think Cebr forecasts are usually right!

Our Doug seems to be a passionate supporter of one of the new forms of measuring GDP or Gross Domestic Product if this from Business Insider in March 2015 is any guide.

Douglas McWilliams, one of the world’s leading economists and a former advisor to UK Chancellor George Osborne and London Mayor Boris Johnson, was allegedly filmed smoking crack in a drugs den in Britain’s capital city.

He is also is facing trial for allegedly assaulting a prostitute on New Year’s Eve after she refused to take crack with him.

Sometimes you really could not make it up.

Meanwhile we see two things from the world of football. Firstly that price inflation is rampant and secondly that capital controls in China may not being doing so well. From BBC Sport.

Chelsea have reportedly accepted a bid of £60m for Oscar – he’ll leave for China in January.

The war on cash

This seems to have developed a new front in what might be called the South China Territories but has been immortalised in song as a land down under. From news.com.au

Speaking to ABC radio on Wednesday, Revenue and Financial Services Minister Kelly O’Dwyer flagged a review of the $100 note and cash payments over certain limits as the government looks to recoup billions in unpaid tax……“The whole point of this crackdown on the black economy is to make sure we close down any potential loopholes,” she said. Despite the broad use of electronic forms of payment, Ms O’Dwyer warned there are three times as many $100 notes in circulation than $5 notes.

What could go wrong? Well there are echoes of the disaster that demonetisation has become in India here.

There are currently 300 million $100 notes in circulation, and 92 per cent of all currency by value is in $50 and $100 notes.

Also there is the issue that this is also presented as a boost to banks and savers will then have to put more money with them as another move favours the “precious”. Oh and I would wager that the unofficial economy in Australia is a lot more than 1.5% of GDP.

Robotics

As we look to the future of wages growth it is hard not to wonder about the effect of improved robots on the situation. Just over a year ago Bank of England Chief Economist Andy Haldane offered this view.

For the UK, that would suggest up to 15 million jobs could be at risk of automation.  In the US, the corresponding figure would be 80 million jobs.

For some jobs this will depress wages although of course it may well boost others. There is a cautionary note which is that Andy has a very poor forecasting record which I am sure any respectable AI style robot could improve. The Resolution Foundation has also considered possible benefits from this general trend and theme.

Given high employment, terrible productivity performance and low investment, the UK arguably needs more automation, not less.

Today’s UK numbers

There was in fact some good news from the wages series.

Between August to October 2015 and August to October 2016, in nominal terms, total pay increased by 2.5%, slightly higher than the growth rate between July to September 2015 and July to September 2016 (2.4%).

So both a higher number and an upwards past revision. This was driven by the fact that wages rose by 2.8% in the month of October alone driven by an 8.6% rise in construction wages and a 4.4% rise in the wholesale sector ( retail and hotels). This meant that real pay would have risen in October as inflation also dipped slightly but the more general pattern is stationary.

Over the same 3-month period, real AWE (regular pay) grew by 1.7%, the same as the growth seen in the 3 months to September

Of course the wages numbers look much worse if we use the RPI or Retail Price Index as our inflation measure where we find ourselves knocking around 1% off the numbers above.

The next number can be seen in two ways.

Total hours worked per week were 1.01 billion for August to October 2016. This was 5.0 million fewer than for May to July 2016 but 7.3 million more than for a year earlier.

Some are reporting this as a post EU vote hiring freeze. It does show a possible change in our previously booming employment position but of course with GDP growing does in fact show a rise in likely productivity.

Whilst the unemployment rate remained at 4.8% there was in fact a small but welcome fall in unemployment.

There were 1.62 million unemployed people (people not in work but seeking and available to work), 16,000 fewer than for May to July 2016 and 103,000 fewer than for a year earlier.

However the claimant count or registered unemployment did rise by 2400 in November which may be a sign of something but this number is not only experimental it comes from a series which no-one has any great faith in.

Comment

There is much to consider in all of this and the undercut to another pretty good set of UK labour market is those who are excluded such as the self-employed who do not appear in the average earnings numbers. Some insight into conditions in the gig industry have been provided by Izzy from FT Alphaville as shown below.

The interviewer stressed I would be earning a standard rate of £7 per hour plus a £1 per delivery bonus for every order completed, but frequently emphasised that I would probably be taking home as much as £12 per hour because of surge incentives. …………In total I did five shifts, and earned an average of £8.10 per hour. The London living wage is supposed to be £9.75, according to London authorities. The national required living wage is £7.20 but goes to £7.50 in April next year.

There were various other issues such as compulsory weekend shifts and Izzy’s view that to get surge wages you had to be available 24/7. As to efficiency the app drained her phone battery quickly and there was also this.

Outside of the office lay heaps of bikes atop of each other, most of them cast loosely aside the building. There appeared to be absolutely nowhere to secure a bike properly — which I thought strange for a cycling courier service.

Actually this resonated with me but from a different industry as my brother has worked as a driving instructor on as franchise basis where companies produce earnings forecasts which are somewhere between misleading and outright fantasy in practice. Both have a type of fixed cost as Deliveroo requires the rider to but branded corporate clothing and driving instructors have a period to which they must commit to pay the weekly franchise fee.

If we return to the official picture then the Resolution Foundation has provided some perspective with this.