The UK underemployment rate rose as high as 18%

At a time of great uncertainty and not a little worry for many we should be able to turn to official statistics for at least a benchmark. Sadly the Covid-19 pandemic has found them to be wanting in many respects. Let me illustrate this with an example from the BBC.

The UK unemployment rate has risen to its highest level for two years, official figures show.

The unemployment rate grew to 4.1% in the three months to July, compared with 3.9% previously.

There are all sorts of problems with this right now which essentially come from the definition.

Unemployment measures people without a job who have been actively seeking work within the last four weeks and are available to start work within the next two weeks.

During this period many will not bother to look for work as for example some think they still have a job.

Last month, we reported on a group of employees who, because of the impact of the coronavirus (COVID-19) pandemic, have reported that they are temporarily away from work and not getting paid. Similarly, there is a group of self-employed people who are temporarily away from work but not eligible for the Self-Employment Income Support Scheme (SEISS). Although these people consider themselves to have a job and therefore are consistent with the ILO definition of employment, their lack of income means that they may soon need to look for work unless they are able to return to their job.

A sort of job illusion for some with the problem being is how many? I would like all of them to return to their jobs but also know they will not. The concept though can be widened if we add in the furlough scheme which was designed to save jobs but as a by product has driven a bus through the employment and unemployment data.

The number of people who are estimated to be temporarily away from work (including furloughed workers) has fallen, but it was still more than 5 million in July 2020, with over 2.5 million of these being away for three months or more. There were also around 250,000 people away from work because of the pandemic and receiving no pay in July 2020.

So we are unsure about 5 million workers which dwarfs this.

Estimates for May to July 2020 show an estimated 1.40 million people were unemployed, 104,000 more than a year earlier and 62,000 more than the previous quarter.

So we see that the number is simply way too low which means that all of the estimates below are at best misleading and in the case of the employment rate outright laughable.

the estimated employment rate for all people was 76.5%; this is 0.4 percentage points up on the year and 0.1 percentage points up on the quarter…….the estimated UK unemployment rate for all people was 4.1%; this is 0.3 percentage points higher than a year earlier and 0.2 percentage points higher than the previous quarter…….the estimated economic inactivity rate for all people was 20.2%, a joint record low; this is down by 0.6 percentage points on the year and down by 0.3 percentage points on the quarter

The economic inactivity measure is perhaps the worst because the worst level of inactivity in my lifetime is being recorded as a record low. This embarrasses the Office for National Statistics as we are in “tractor production is rising” territory.

What can we use?

A measure which is working pretty well seems to be this.

Between February to April 2020 and May to July 2020, total actual weekly hours worked in the UK decreased by 93.9 million to 866.0 million hours. Average actual weekly hours fell by 2.8 hours on the quarter to 26.3 hours.

This shows a much larger change than that suggested by the official unemployment measure. We can in fact learn more by looking further back.

Over the year, total actual weekly hours worked in the UK decreased by 183.8 million to 866.0 million hours in the three months to July 2020. Over the same period, average actual weekly hours fell by 5.8 hours to 26.3 hours.

On this measure we see that if we put this into the employment numbers we would see a fall approaching 6 million. So in effect the underemployment rate was in fact heading for 18%. If we simply assume that half of it was unemployment we have an unemployment rate of 11% which in economic terms I am sure we did. Now the economy is more open perhaps it is 7-8%.

The 8% unemployment rate does get some support from this.

Between July 2020 and August 2020, the Claimant Count increased by 73,700 (2.8%) to 2.7 million (Figure 10). Since March 2020, the Claimant Count has increased by 120.8% or 1.5 million.

It is hard not to have a wry smile as I type that because back in the mid 1980s Jim Hacker in Yes Minister told us nobody believes the unemployment figures and those are the one he was referring to. There are other references to that sort of thing as well.

Hacker: The school leaving age was raised to 16 so that they could learn more, and they’re learning less!

Sir Humphrey: We didn’t raise it to enable them to learn more! We raised it to keep teenagers off the job market and hold down the unemployment figures.

Pay

The opening salvo is less than reassuring.

The rate of decline in employee pay growth slowed in July 2020 following strong falls in the previous three months;

We find that the pattern is what we would be expecting.

Growth in average total pay (including bonuses) among employees was negative 1.0% in May to July, with annual growth in bonus payments at negative 21.4%; however, regular pay (excluding bonuses) was positive at 0.2%.

It has been the public sector which has stopped the numbers being even worse.

Between May to July 2019 and May to July 2020, average pay growth varied by industry sector . The public sector saw the highest estimated growth, at 4.5% for regular pay. Negative growth was seen in the construction sector, estimated at negative 7.5%, the wholesaling, retailing, hotels and restaurants sector, estimated at negative 3.2%, and the manufacturing sector, estimated at negative 1.7%.

However there was an improvement for many in July.

 For the construction, manufacturing, and the wholesaling, retailing, hotels and restaurants sectors, the July 2020 estimate of annual growth shows sign of improvement when compared with May to July 2020.

If we look at the construction sector then weekly wages rose from £573 in June to £620 in July so there was quite a pick-up of which £10 was bonuses.

Switching to an estimate of real pay we are told this.

In real terms, total pay growth for May to July was negative 1.8% (that is, nominal total pay grew more slowly than inflation); regular pay growth was negative 0.7%.

Although those numbers rely on you believing the inflation numbers which I do not.

Comment

We have found that the official ILO ( International Labor Organisation) methodology to have failed us in this pandemic. Even worse no effort has been made to fix something we have been noting ( in this instance looking at Italy) since the third of June.

and unemployment sharply fell

If you actually believe unemployment fell in Italy in April I not only have a bridge to sell you I may as well sell the river as well.

Looking at the data suggests an underemployment rate of the order of 20% in the UK giving us an actual unemployment rate perhaps double the recorded figure.

If we switch to pay and wages we need to remind ourselves of those who are not counted. For example the self-employed and companies with less than ten employees. Such omissions did not bother the Dr.Martin Weale review back in the day but perhaps one of the ONS Fellows could help like er Dr.Martin Weale. We are back to reliving Yes Minister again.

Meanwhile according to Financial News some are resorting to desperate measures to get GDP rising again.

‘It could get really messy’: Finance workers’ cocaine use spikes in lockdown

The Euro area unemployment rate is much higher than the 7.4% reported today

A clear feature of the economic landscape post the Covid-19 pandemic is mass unemployment. We should firstly note that this is and will continue to create quite a bit of suffering and angst. Also that all the easing policies of the central banks over the past decade or so were supposed to avoid this sort of thing. But if the system was a rubber band it had been stretched towards breaking point and now all they can do is pump it all up even more. But for our purposes there is another issue which is that we have little idea of either how much unemployment there is or how long it will last. Let me illustrate by looking at the numbers just release by Italy.

The Italian Job

As you might expect employment fell in May.

On a monthly basis, the decline of employment (-0.4%, -84 thousand) concerned more women ( 0.7%, 65 thousand) than men (-0.1%, -19 thousand), and brought the employment rate to 57.6% (-0.2 p.p.)…….With respect to the previous quarter, in the period March – May 2020, employment considerably decreased (-1.6%, 381 thousand) for both genders.

 

Also unemployment rose.

In the last month, also unemployed people grew (+18.9%, +307 thousand) more among women (+31.3%, +227 thousand) than men (+8.8%, +80 thousand). The unemployment rate rose to 7.8% (+1.2 percentage points) and the youth rate increased to 23.5% (+2.0 p.p.).

Now the problems begin. Firstly I recall that last time around we were told the unemployment rate was 6.3% which has seen a substantial revision to 6.6%. There my sympathy is with the statisticians at a difficult time. But for the next bit we have to suspend credulity.

In the last three months, also the number of unemployed persons decreased (-22.3%, -533 thousand), while a growth among inactive people aged 15-64 years was registered (+6.6%, +880 thousand).

If we look further back we just compound the issue.

On a yearly basis, the decrease of employed people was accompanied by a fall of unemployed persons (-25.7%, -669 thousand) and a growth of inactive people aged 15-64 (+8.7%, +1 million 140 thousand).

As I pointed out last month the issue is how unemployment is defined.

Unemployed persons: comprise persons aged 15-74 who:
were actively seeking work, i.e. had carried out activities in the four week period ending with the reference week
to seek paid employment or self-employment and were available to start working before the end of the two
weeks following the reference week;

The definition fails when you have a lockdown as some cannot go to work and others quite reasonably think that there is no point. If we assume that the rise in activity is all a type of hidden unemployment then we get an unemployment rate of 12.4% in Italy. Our estimate will be far from perfect so let us say we think it has risen from ~11% last in April to more like 12% in May.

An even grimmer situation is shown by youth unemployment. The official reading is bad enough.

the youth rate increased to 23.5% (+2.0 p.p.).

But if we apply the same methodology we get to a rather chilling 46.3%. The inactivity category here is huge at 4.6 million which I hope is pretty much students. I have to confess that I am reminded of the Yes Prime Minister quote from the 1980s that education was mostly extended to reduce the unemployment numbers. Anyway it is a blunt number but frankly will be much nearer than the official one. Also there will be many young Italians who have had little hope of a job post credit crunch as it was and it just got worse.

What we do learn is how few people are surveyed for these numbers.

The number of interviewed households for May 2020 is about 17,000 (almost equal to 35,500 individuals) and is
approximately 10% lower than the average number of interviews used for the production of estimates related to a
four-weeks month.

Spain

If we switch to the Ministry of Labour we get a barrage of numbers.

Unemployment is reduced in all sectors except agriculture and among claimants “without previous employment”
There are fewer unemployed registered in ten autonomous communities
In June 308,985 more contracts were signed than in the previous month
Almost six million people received SEPE benefits in May.

These numbers look both more useful and realistic. Things started to get better last month with around 309,000 new jobs but the Furlough scheme count in May of 6 million gives a perspective. Also unemployment edged higher.

The registered unemployment in the offices of the State Public Employment Service (SEPE) has increased by 5,107 people compared to the previous month. This represents an increase of 0.1%, which deepens the trend of slowing down the growth rate of unemployment that began in May.

So we end up with this.

The total number of unemployed persons registered in the SEPE offices amount to 3,862,883.

There is an irony in using registered unemployment numbers as they fell into disrepute due to the way they can be manipulated and fiddled. But right now they are doing better than the official series. El Pais summarises it like this.

The total number of jobseekers in Spain has risen to 3.86 million, the highest figure registered since May 2016……The rise in unemployment for June is the first increase seen since 2008, just months before the fall of Lehman Brothers and the year of the financial crisis. The increase in contributors to the Social Security system for the month is also the smallest since 2015.

So we see that there are also still around 2.1 million people on the furlough scheme. In total these benefits were paid out.

In May, the SEPE paid 5,526 million euros in benefits, of which 3,318 million were dedicated to paying ERTE benefits and 2,208 million to unemployment benefits, both at the contributory and assistance level.

If we use these numbers are plug them into the official unemployment series we end up with an unemployment rate of 16.8%.

Euro Area

This morning’s official release tells us this.

In May 2020, a third month marked by COVID-19 containment measures in most Member States, the euro area seasonally-adjusted unemployment rate was 7.4%, up from 7.3% in April 2020……..Eurostat estimates that 14.366 million men and women in the EU, of whom 12.146 million in the euro area, were unemployed in May 2020. Compared with April 2020, the number of persons unemployed increased by 253 000 in the EU and by 159 000 in the euro area.

Unfortunately we do not have an update on inactivity so we can have a go at getting a better picture. We are promised more but not until next week.

To capture in full the unprecedented labour market situation triggered by the COVID-19 outbreak, the data on
unemployment will be complemented by additional indicators, e.g. on employment, underemployment and potential
additional labour force participants, when the LFS quarterly data for 2020 are published.

Comment

As you have seen earlier this is a “Houston we have a problem moment” for unemployment data as it rigorously calculates the numbers on the wrong football pitch. It creates problems highlighted by this tweet from Silvia Amaro of CNBC.

#unemployment in the euro zone came in at 7.4% in May. At the height of the debt crisis it reached 12.1%. #COVIDー19

That creates the impression things are much better now when in fact they may well be worse. Without the furlough schemes they certainly would be. What we fo not know is how long it will last?

 

UK Real Wages have fallen by over 2% as the unemployment rate looks to have passed 5%

On Friday we got some insight into the state of play of UK output and GDP in April with the caveats I pointed out at the time. This morning has seen us receive the official figures on employment, unemployment and wages which shed with caveats further insight as to where we are. So let us take a look at the opening line.

Early indicators for May 2020 suggest that the number of employees in the UK on payrolls is down over 600,000 compared with March 2020. The Claimant Count has continued to rise, enhancements to Universal Credit as part of the UK government’s response to the coronavirus (COVID-19) mean an increase in the number of people eligible.

There is quite a bit going on in that paragraph and it is hard to avoid a wry smile at us being directed towards the Claimant Count that was first regarded as unreliable and manipulated back in the 1980s in the Yes Minister TV series,

Sir Humphrey: We didn’t raise it to enable them to learn more! We raised it to keep teenagers off the job market and hold down the unemployment figures.

There is also an episode where Jim Hacker tells us nobody actually believes the unemployment ( Claimant Count) numbers. The tweek to the Universal Credit system is welcome in helping people in trouble but does also add more smoke to the view.

Employment

We can dig deeper and let us start with a little more precision.

Experimental data of the number of payroll employees using HM Revenue and Customs’ (HMRC’s) Pay As You Earn Real Time Information figures show a fall in payroll employees in recent months. Early estimates for May 2020 from PAYE RTI indicate that the number of payroll employees fell by 2.1% (612,000) compared with March 2020.

Let me give our statisticians credit for looking at other sources of data to glean more information. But in this area there is an elephant in the room and it is a large one.

The International Labour Organization (ILO) definition of employment includes those who worked in a job for at least one hour and those temporarily absent from a job.

Regular readers of my work will be aware of this issue but there is more.

Workers furloughed under the Coronavirus Job Retention Scheme (CJRS), or who are self-employed but temporarily not in work, have a reasonable expectation of returning to their jobs after a temporary period of absence. Therefore, they are classified as employed under the ILO definition.

As the estimate for them is of the order of 6 million we find that our employment fall estimate could be out by a factor of ten! Breaking it down there are all sorts of categories from those who will be unemployed as soon as the scheme ends to those who have been working as well ( sometimes for the same employer) who may be getting an official knock on the door. Also the numbers keep rising as HM Treasury has pointed out today.

By midnight on 14 June there’s been a total of: 9.1m jobs furloughed £20.8bn claimed in total

So the best guide we have comes from this in my opinion.

Between February to April 2019 and February to April 2020, total actual weekly hours worked in the UK decreased by 94.2 million, or 8.9%, to 959.9 million hours. A decrease of 91.2 million or 8.7% was also seen on the quarter.

In terms of a graph we have quite a lurch.

I doubt many of you will be surprised to learn this bit.

The “accommodation and food service activities” industrial sector saw the biggest fall in average actual hours; down 6.9 hours to 21.2 hours per week.

With hotels shut and restaurants doing take out at best I am in fact surprised the numbers have not fallen further.

Unemployment

The conventional measures are simply not cutting it.

For February to April 2020: the estimated UK unemployment rate for all people was 3.9%; 0.1 percentage points higher than a year earlier but unchanged on the previous quarter.

We can apply the methodology I used for Italy on the 3rd of this month where we discovered that a flaw  meant that we found what we would regard as unemployed in the inactivity data.

The single-month estimate for the economic inactivity rate, for people aged 16 to 64 years in the UK, for April 2020, was 20.9%, the highest since August 2019. This represents an increase of 0.7 percentage points on the previous month (March 2020) and a record increase of 0.8 percentage points compared with three months ago (January 2020).

If we count the extra inactivity as unemployed we have some 349,000 more or if you prefer an unemployment rate of 5.1%. This begins to bring the numbers closer to reality although we are not allowing for those who will be unemployed as soon as the furlough scheme ends. Also we are not allowing for the scale of underemployment revealed by the hours worked figures.

Wages and Real Wages

I doubt anyone is going to be too surprised by the fall here.

Estimated annual growth in average weekly earnings for employees in Great Britain in the three months to April 2020 was 1.0% for total pay (including bonuses) and 1.7% for regular pay (excluding bonuses).

It is quite a drop on what we had before.

Annual growth has slowed sharply for both total and regular pay compared with the period prior to introduction of the corona virus lockdown measures (December to February 2020), when it was 2.9%.

We see that bonuses plunged if we throw a veil over the double negative below.

The difference between the two measures is because of subdued bonuses, which fell by an average negative 6.8% (in nominal terms) in the three months February to April 2020.

If we look at April alone we get an even grimmer picture.

Single month growth in average weekly earnings for April 2020 was negative 0.9% for total pay and 0% for regular pay.

Already real wages were in trouble.

The 1.0% growth in total pay in February to April 2020 translates to a fall of negative 0.4% in real terms (that is, total pay grew slower than inflation); in comparison, regular pay grew in real terms, by 0.4%, the difference being driven by subdued bonuses in recent months.

So even using the woeful official measure driven by Imputed Rents we see a real wages decline of 1.8% in April. A much more realistic measure is of course the Retail Prices Index or RPI which shows a 2.4% fall for real wages in April.

On this subject there has been some research from my alma mater the LSE giving more power to the RPI’s elbow.

Aggregate month-to-month inflation was 2.4% in the first month of lockdown, a rate over 10 times higher than in preceding months.

I will look at this more when we come to the UK inflation data but it is another nail on the coffin for official claims and if I may be so bold a slap on the back for my arguments.

 

Comment

Today’s journey shows that with a little thought and application we can do better than the official data. Our estimate of the unemployment rate of 5.1% is more realistic than the official 3.9% although the weakness is an inability to allow for what must be underemployment on a grand scale. Shifting to real wages we fear that they may have fallen by over 3% in April as opposed to the official headline of a 0.4% fall. So we get closer to reality even when it is an unattractive one.

Staying with wages the numbers are being influenced by this.

Pay estimates are based on all employees on company payrolls, including those who have been furloughed under the Coronavirus Job Retention Scheme (CJRS).

Also Is it rude to point out that we are guided towards the monthly GDP statistics but told that the monthly wages ones ( a much longer running series) are less reliable?. Someone at the UK Statistics Authority needs to get a grip and preferably soon .

 

 

 

 

The problems posed by mass unemployment

A sad consequence of the lock downs and the effective closure of some parts of the economy is lower employment and higher unemployment. That type of theme was in evidence very early today as we learnt that even the land “down under” looks like it is in recession after recording a 0.3% decline in the opening quarter of 2020. The first for nearly 30 years as even the commodities boom seen has been unable to resist the effects of the pandemic. This brings me to what Australia Statistics told us last month.

Employment decreased by 594,300 people (-4.6%) between March and April 2020, with full-time employment decreasing by 220,500 people and part-time employment decreasing by 373,800 people.Compared to a year ago, there were 123,000 less people employed full-time and 272,000 less people employed part-time. Thischange led to a decrease in the part-time share of employment over the past 12 months, from 31.5% to 30.3%.

I have opened with the employment data as we get a better guide from it in such times although to be fair it seems to be making a fist of the unemployment position.

The unemployment rate increased 1.0 points to 6.2%and was 1.0 points higher than in April 2019. The number of unemployed people increased by 104,500 in April 2020 to 823,300 people, and increased by 117,700 people from April 2019.

The underemployment rate increased by 4.9 pts to 13.7%, the highest on record, and was 5.2 pts higher than in April 2019.The number of underemployed people increased by 603,300 in April 2020 to 1,816,100 people, an increase of almost 50% (49.7%), and increased by 666,100 people since April 2019.

As you can see they have picked up a fair bit of the changes and it is nice to see an underemployment measure albeit not nice to see it rise so much. The signal for the Australian economy in the quarter just gone is rather grim though especially if we note this.

Monthly hours worked in all jobs decreased by 163.9 million hours (-9.2%) to 1,625.8 million hours in April 2020, larger than the decrease in employed people.

Italy

In line with our “Girlfriend in a coma” theme one fears the worst for Italy now especially as we note how hard it was hit by the virus pandemic. Even worse a mere headline perusal is actively misleading as I note this from Istat, and the emphasis is mine.

In April 2020, in comparison with the previous month, employment significantly decreased and unemployment sharply fell together with a relevant increase of inactivity.

The full detail is below.

In the last month, also the remarkable fall of the unemployed people (-23.9%, -484 thousand) was recorded for both men (-17.4%, -179 thousand) and women (-30.6%, -305 thousand). The unemployment rate dropped to 6.3% (-1.7 percentage points) and the youth rate fell to 20.3% (-6.2 p.p.).

Yes a number which ordinarily would be perceived as a triumph after all the struggles Italy has had with its economy and elevated unemployment is at best a mirage and at worst a complete fail for the methodology below.

Unemployed persons: comprise persons aged 15-74 who:
were actively seeking work, i.e. had carried out activities in the four week period ending with the reference week
to seek paid employment or self-employment and were available to start working before the end of the two
weeks following the reference week;

Some would not have bothered to look for work thinking it was hopeless and many of course would simply have been unable to. We do find them elsewhere in the data set.

In April the considerable growth of inactive people aged 15-64 (+5.4%, +746 thousand) was registered for
both men (+6.0%, +307 thousand) and women (+5.0%, +438 thousand), leading the inactivity rate to
38.1% (+2.0 percentage points).

If we look back we see that there was a similar issue with the March numbers so a published unemployment rate of 6.3% looks like one of over 11% if we make some sort of correction for the April and March issues.

We get a better guide to the state of play from the employment position which as we observe from time to time has become something of a leafing indicator.

On a monthly basis, the decline of employment (-1.2%, -274 thousand) concerned both men (-1.0%, -131 thousand) and women (-1.5%, -143 thousand), and brought the employment rate to 57.9% (-0.7 p. p.)…….With respect to the previous quarter, in the period February – April 2020, employment considerably decreased (-1.0%, -226 thousand) for both genders…….Compared to March 2019, employment showed a decrease in terms of figures (-2.1%, -497 thousand) and rate (-1.1 percentage points).

Oh and in the last sentence they mean April rather than March. But looking ahead we see a 1.2% fall for employment in April alone which has implications for GDP and of course it is before the furlough scheme.

 Italy has furloughed 7.2 million workers, equivalent to 31% of employment at end-2019; ( FitchRatings )

Germany

This morning has also brought news about the state of play in Germany.

WIESBADEN – Roughly 44.8 million persons resident in Germany (national concept) were in employment in April 2020 according to provisional calculations of the Federal Statistical Office (Destatis). Compared with April 2019, the number of persons in employment decreased by 0.5% (-210,000). This means that for the first time since March 2010 the number of persons in employment decreased year on year (-92,000; -0.2%). In March 2020, the year-on-year change rate had been +0.2%.

For our purposes we get a signal from this.

According to provisional results of the employment accounts, the number of persons in employment fell by 161,000 in April 2020 on the previous month. Normally, employment rises strongly in April as a result of the usual spring upturn, that is, by 143,000 in April on an average of the last five years.

Perhaps the headline read a lot better in German.

No spring upturn

Switching to unemployment the system seems less flawed than in Italy.

Results of the labour force survey show that 1.89 million people were unemployed in April 2020. That was an increase of 220,000, or 13.2%, on March 2020. Compared with April 2019, the number of unemployed persons increased by 515,000 or +38.0%. The unemployment rate was 4.3% in April 2020.

There is a clear conceptual issue here if we return to Fitch Ratings.

Germany has enrolled more than 10 million workers on its scheme, representing 22% of employment at the end-2019. This number ultimately may be lower because some firms that have registered employees as a precaution may decide not to participate.

Germany employed the Kurzarbeit to great effect during the global financial crisis when its implementation prevented the mass lay-offs that were seen elsewhere in Europe. While unemployment in Germany remained broadly unchanged in 2008-2009, other countries reported significant increases.

Comment

There are deep sociological and psychological impacts from these numbers and let me give my sympathies to those affected. Hopefully we can avoid what happened in the 1930s. Returning to the statistics there are a litany of issues some of which we have already looked at. Let me point out another via the German employment data.

After seasonal adjustment, that is, after the elimination of the usual seasonal fluctuations, the number of persons in employment decreased by 271,000 (-0.6%) in April 2020 compared with March 2020.

The usual pattern for seasonal fluctuations will be no guide this year and may even be worse than useless but it will still be used in the headline data. But there is more if we switch to Eurostat.

In April 2020, the second month after COVID-19 containment measures were implemented by most Member
States, the euro area seasonally-adjusted unemployment rate was 7.3%, up from 7.1% in March 2020. The EU
unemployment rate was 6.6% in April 2020, up from 6.4% in March 2020.

We have the issue of Italy recording a large rise as a fall but even in Germany there is an issue as I note an unemployment rate of 4.3%. Well after applying the usual rules Eurostat has published it at 3.5%. There is no great conspiracy here as the statisticians apply rules which are supposed to make things clearer but some extra thought is requited as we note they are in fact making the numbers pretty meaningless right now, or the opposite of their role.

The Investing Channel

 

 

 

 

The UK Labour Market continues to look strong

This week has already seen a fair flurry of new information on the UK economy, so let us start with what will have caught the eye of Mark Carney and the Bank of England.

LONDON (Reuters) – Asking prices for British houses put on sale in the five weeks to Jan. 11 rose by a record amount for the time of year, property website Rightmove said on Monday, adding to signs of a post-election bounce in consumer and business confidence…….Rightmove said average asking prices of property marketed between Dec. 8 and Jan. 11 jumped 2.3% in monthly terms, the biggest increase for that period since the survey started in 2002.

The cautionary note is that it is asking prices ( you can ask what you want…) and not sold or traded prices but those looking for a post election bounce will add it to the Halifax numbers.

Yesterday also brought positive news on UK household finances as well.

“Latest survey data certainly show some post-election
bounce for UK households, with the headline index up
to a one-year high and house price expectations at their
strongest since October 2018. That said, cooling inflation
was most likely the real driving force, propping up real
earnings and disposable incomes” ( Markit )

So there are various surveys suggesting optimism for house prices and one saying something similar for household finances. This is really rather awkward for a Bank of England not only warming up for a Bank Rate cut with Gertjan Vlieghe explicitly saying he will look at sentiment measures. Of course Friday’s Retail Sales showed weakness but they can be unreliable and erratic.

Employment

This morning has brought both good and not so good news on the employment situation. So let us start with the positive.

Facebook says it is to create 1,000 new jobs in the UK this year, delivering a vote of confidence in the UK economy ahead of Brexit.

The tech firm issued a long-term commitment to the country as it made the announcement, in the run-up to a speech to be made in London later on Tuesday by its chief operating officer Sheryl Sandberg.

Facebook said the new roles would take its UK workforce beyond 4,000 people. ( Sky News)

Meanwhile the Financial Times is doing some scaremongering about HS2.

Hundreds of employees could face job cuts, while companies working on HS2 have been told to slow down work as uncertainty mounts over the fate of Britain’s most ambitious infrastructure project

I do not wish for people to lose their jobs but in this instance we have the issue of what are they actually producing?

UK Labour Market Release

We saw another in a long-running series where there was strong employment growth.

There was a 208,000 increase in employment on the quarter. This was, again, mainly driven by quarterly increases for full-time workers (up 197,000; the largest increase since September to November 2015) and for women (up 148,000; the largest increase since February to April 2014). The quarterly increase in women working full-time (up 126,000) was the largest since November 2012 to January 2013.

The tilt towards female employment was also to be found in the annual comparison where of an increase of 349,000 full-time jobs some 317,000 were for women.

This meant that there was another record.

The UK employment rate was estimated at a record high of 76.3%, 0.6 percentage points higher than a year earlier and 0.5 percentage points up on the previous quarter.

I will look at the broader consequences of this later but for the moment let us stay in the labour market and note the influence of what with apologies to those in it is something of a residual category.

The UK economic inactivity rate was estimated at a record low of 20.6%, 0.4 percentage points lower than the previous year and the previous quarter.

Okay so what is going on here?

Estimates for September to November 2019 show 8.51 million people aged between 16 and 64 years not in the labour force (economically inactive). This was 145,000 fewer than a year earlier and 587,000 fewer than five years earlier. The annual decrease was driven by women, with the level down 157,000 to reach a record low of 5.18 million.

So it is another case of let’s hear it for the girls where women have stopped being recorded as inactive and are now employed instead. There is a combination of good news and the influence of the raising of the state pension age at play here. As an aside the broad sweep has been women moving from inactivity to employment since these records began in 1971. The timing of the recent move also suggests that there was an influence from students as well.

There were fears of a rise in unemployment but as you can see below they were unfounded.

For September to November 2019, an estimated 1.31 million people were unemployed. This is 64,000 fewer than a year earlier and 618,000 fewer than five years earlier……The UK unemployment rate was estimated at 3.8%, 0.2 percentage points lower than a year earlier but largely unchanged on the previous quarter.

Wages

The previous release had seen a fall but this was not repeated.

Estimated annual growth in average weekly earnings for employees in Great Britain remained unchanged at 3.2% for total pay (including bonuses), and slowed to 3.4% from 3.5% for regular pay (excluding bonuses).

There was a switch towards bonus payments although slightly confusingly less than last year!

The annual growth in total pay was weakened by unusually high bonus payments paid in October 2018 compared with more typical average bonus payments paid in October 2019.

Let me now switch to the official view on real pay.

In real terms, annual pay growth has been positive since December 2017 to February 2018, and is now 1.6% for total pay (compared with 1.5% last month) and 1.8% for regular pay (unchanged from last month).

Sadly this relies on the woeful CPIH inflation measure and if we now switch from good news ( real wage growth) to the overall picture we get some bad news.

The equivalent figures for total pay in real terms are £503 per week in November 2019 and £525 in February 2008, a 4.1% difference.

Regular readers will be aware of my views on the inflation measure so let me present the issue another way today. The offiicial release points us towards the numbers for real regular pay. Can you guess which of the lines below that one is and no cheating?!

https://pbs.twimg.com/media/EOy_EsTXsAEsM8G?format=jpg&name=900×900

The chart was provided by Rupert Seggins and as you can see rather changes both the narrative and the perspective.

Comment

We find that if we look back the sequence of strong UK employment data started in 2012 and it is ongoing. There is a particular context to this though and let me illustrate with a tweet from Chris Dillow of the Investors Chronicle.

ONS also says hours worked rose 0.5% in Sep-Nov. With GDP rising only 0.1%, this means productivity fell. Might be partly a Brexit effect (uncertainty cut output but encouraged labour hoarding). But it reinforces the picture of long-term stagnation.

The issue here is that with the numbers we have productivity fell. But it is also true that last time the UK labour market and GDP diverged like we are seeing now it was the ( more positive) labour market which was correct as GDP later rose. It is another problem for the economics 101 view that the labour market responds in a lagged fashion as back then it led and GDP followed. More specifically we often see these days that employment is a driver of the economy rather than a follower.

Moving to wages we see that finally the employment growth gave us real wage growth but it took so long we have a bit of a mountain to climb. That is really quite a devastating critique of the Ivory Tower “output gap” thinking that has as many holes in it as I am hoping Arsenal’s defence will have tonight. Yet only last week Bank of England policymakers were repeating their output gap mantra. On that subject they have something of a problem again because they have got us ready for an interest-rate cut just in time for most of the data to be good. The bad bit was the retail sales numbers from Friday which now look out of phase with the employment numbers making me wonder if their seasonality algorithm has had a HAL-9000 moment? Whilst there is an intra-market shift in their favour as well maybe Aldi thinks do if this is any guide.

Aldi plans to increase pay for its staff by just over 3%, making it one of the best-paying supermarkets in the UK.

The discounter said its minimum hourly pay rates will rise from £9.10 an hour to £9.40, with workers inside the M25 getting £10.90 an hour instead of £10.55…….Aldi, Britain’s fifth-largest supermarket, also said it would be hiring 3,800 new employees for store level positions.

 

Has UK employment peaked and if so why aren’t wages rising faster?

After yesterday’s generally good economic news from the UK we turn to the labour market today. This has been if we switch to a football analogy a story of two halves. The first half continues an optimistic theme as we note how the quantity numbers such as employment and unemployment have developed. Indeed it was the rally in employment that signaled the  turn in the UK economy at the opening of 2012 and set the trend some time before the output numbers caught up. If we take a broad sweep the number of people employed in the UK has risen from 29.4 million to 32.4 million. That is not a perfect guide due to problems with how the numbers are measured and the concept of underemployment, but if we switch to hours worked we see they have risen from 935 million per week to 1032 million per week over the same time period.

But the ying to that yang has come from the price of labour or wage growth which has consistently struggled. This has been associated with what has come to be called the “productivity puzzle”. These are issues which are spread far wider than the UK as for example whilst the rise in US wage growth seen on Friday was welcome the reality was that it was to 2.9%. Or to put it another way the same as the July CPI inflation number. That sets a first world context where growth is not what it used to be as I looked at only on Friday. The truth is that it was fading even before the credit crunch and it gave it a further push downwards.

Unfortunately whilst we face the reality of something of a lost decade for wage growth the establishment has not caught up. It continues to believe that a change is just around the corner. For example the Ivory Tower at the Bank of England has forecast year after year that wage growth will pick up in a rinse, fail and repeat style. This is based on the “output gap” theory that has been so regularly debunked by reality over the past decade.

The MPC continues to judge that the UK economy currently has a very limited degree of slack. ( August Minutes)

This has been its position for some years now with the original starting position being that the “slack” was of the order of 1% to 1.5%. In that world wages would be on their way to the 5 1/2% growth rate predicted by the Office for Budget Responsibility back in the summer of 2010.

Does this really matter? I think it does. This is because when an official body becomes something of a haven for fantasies it allows it to avoid facing up to reality especially if that reality is an uncomfortable one. A particular uncomfortable reality for the establishment is the fact that the decline in wage growth has accompanied the era of low and negative interest-rates and the QE era. If you try to take credit for employment growth ( I recall Governor Carney claiming that he had “saved” 250.000 jobs with his post EU leave vote actions) then you also have to face the possibility that you have helped to reduce wage growth. Propping up larger businesses and especially banks means that the “creative destruction” of capitalism barely gets a look in these days.

Today’s data

Wages

Looked at in isolation we got some better news this morning.

Between May to July 2017 and May to July 2018, in nominal terms: regular pay increased by 2.9%, higher than the growth rate between April to June 2017 and April to June 2018 (2.7%)……..total pay increased by 2.6%, higher than the growth rate between April to June 2017 and April to June 2018 (2.4%).

Should you wish to cherry pick in the manner of the Bank of England then your focus would turn to the 3% growth of private-sector regular pay and perhaps to its 3.2% growth in July alone. Indeed you could go further and emphasise the 3.5% growth in regular pay in the wholesale retail and hotel/restaurant category which was driven by 4.4% growth in July.

But the problem for the many cherry pickers comes from the widest number which cover everyone surveyed and also includes bonuses. You see it started 2018 at 2.8% as opposed to the 2.6% in the three months to July. Also if we look back we see that weekly total wages fell in July of 2017 from £509 to £504 so the 3.1% increase in July is compared to a low base. Thus even after what is six years now of employment gains we find ourselves facing this situation.

Please take their numbers as a broad brush. It is welcome that they provide historical context,  but also disappointing that they use the CPIH inflation measure which via its use of imputed or fantasy rents is an inappropriate measure for this purpose. Pretty much any other inflation measure would overall show a worse situation.

Employment

The long sequence of gains may now be fading.

Estimates from the Labour Force Survey show that, between February to April 2018 and May to July 2018, the number of people in work was little changed………..There were 32.40 million people in work, little changed compared with February to April 2018 but 261,000 more than for a year earlier.

On the surface it looks like the composition of employment at least was favourable.

Figure 4 shows that the annual increase in the number of people in employment (261,000) was entirely due to more people in full-time employment (263,000).

Due to the way full-time employment is officially counted (for newer readers rather than being defined it is a matter of choice/opinion) we need confirmation from the hours worked numbers.

Between February to April 2018 and May to July 2018, total hours worked increased (by 4.0 million) to 1.03 billion. This increase in total hours worked reflected an increase in average weekly hours worked by full-time workers, particularly women.

Work until you drop?

There has been a quite noticeable change in one section of the workforce.

The number of people aged 65 years and older who were in employment more than doubled between January 2006 and July 2018, from 607,000 to 1.26 million. The same age group had an employment rate of 6.6% in 2006 and this increased to 10.7% in the three months to July 2018.

We get some suggested reasons for why this might be so.

the improved health of the older population, which increases older workers’ desire to continue working for reasons of status, identity and economic well-being.

 

changes to the state pensionable age for both men and women.

 

changes to employment laws that prohibit discrimination based on age.

 

older people’s desire for financial independence and social interaction.

To my mind that list misses out those who continue to work because they feel they have to. Either to make ends meet or to help younger members of their family.

Comment

There is a fair bit to consider today and this time around it concerns employment itself. At some point the growth had to tail off and that has perhaps arrived and it has come with something else.

The level of inactivity in the UK went up by 108,000 to 8.76 million in the three months to July 2018, resulting in an inactivity rate of 21.2%. Inactivity increased by 16,000 on the year.

That is an odd change when the employment situation looks so strong and I will be watching it as the rest of 2018 unfolds.

Moving to wages we find ourselves yet again at the mercy of the poor quality of the data. The exclusion of the self-employed, smaller businesses and the armed forces means that they tell us a lot less than they should. Also the use of a broad average means that the numbers are affected by changes in the composition of the workforce. For example if many of the new jobs created are at lower wages which seems likely that pulls the rate of growth lower when they go into the overall number. So it would be good to know what those who have remained in work have got. Otherwise we are in danger of a two or more classes of growth and also wondering why so many in work need some form of income support.

 

 

 

 

 

 

 

 

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

 

 

 

Is this something of a Goldilocks scenario in the UK labour market?!

Today brings us to the latest official wages and labour market data for the UK . If that feels wrong you are indeed correct and the rationale for switching from a Wednesday is both breathtaking and probably true. From City AM in February.

The ONS said today: “Publication of labour market statistics on the day of Prime Minister’s Questions – one of the most important and most widely covered parliamentary occasions – means there is a risk that these detailed statistics are not fully understood by Parliamentarians on both sides of the House before they can be debated. This reduces the public value of these statistics.

Of course recent events suggest that they still will not understand them!

If we move to wages then the mood music generally is that they are rising. This is an international theme as anecdotes from the US are accompanied by talk of rises in Japan. The particular problem with Japan is that seems to come each year with the flowering of the Cherry Blossoms and usually lasts about as long as the flowers. Switching back to the UK we were told this last week. From the Recruitment and Employment Confederation.

March data signalled a further sharp increase in permanent staff placements across the UK, with the pace of expansion edging up fractionally since February. In contrast, temp billings expanded at the weakest pace for over a year.

So we see what is in labour market terms signs of a mature phase of the expansion. Jobs growth cannot boom for ever so employers may well be switching from offering temporary to permanent work in response to fears that they may find it harder to get temporary workers. If we look back for some perspective we see that the rally in UK employment began at the end of 2011 and the around 29,300,000 of then has been replaced by around 32,300,000 now. Frankly it told us something was changing well before the output or GDP data with the caveat being the question around what does employment actually mean these days?

Moving to wages the REC told us this.

Pay pressures remain marked

 

Average starting salaries continued to increase sharply in March, despite the rate of inflation softening to a ten-month low. Pay for temporary/contract staff rose at the quickest pace since last September.

Let us hope so as we have a lot of ground to regain as the Office for National Statistics suggested last week. Some of you have been kind enough to suggest its production of income data minus the imputed numbers is a success for my efforts but either way it have given some food for thought.

Cash real household disposable income (RHDI) per head fell for the second successive year, both on a national accounts and cash basis. Cash RHDI per head fell, by 0.7% year on year, whereas national accounts RHDI per head fell 0.3% year on year.

This is an interesting result although I am not sure that they have the numbers under control as they rose by 5% in 2015 perhaps excluding the fantasy numbers is proving more problematic than they thought. They also give a great definition of fantasy or made-up numbers though!

 it is not expenditure (or income) directly observed by homeowners. As a result, the national accounts measure of RHDI can differ from the perceived experience of households.

Today’s data

Having noted earlier the way that the level of employment turned out to be a better signal than GDP back in 2011/12 lets us go straight to it.

There were 32.26 million people in work, 55,000 more than for September to November 2017 and 427,000 more than for a year earlier.

which leads to this.

The employment rate (the proportion of people aged from 16 to 64 years who were in work) was 75.4%, higher than for a year earlier (74.6%) and the highest since comparable records began in 1971.

So our labour market has continued in quantity terms to improve and for perspective here is the low on these figures.

The lowest employment rate for people was 65.6% in 1983, during the economic downturn of the early 1980s.

On this measure we are doing extraordinarily well and if we look into the detail we see that over the past year the gains have been mostly in full-time work (280,000) at least according to the ONS as its definition of this is a bit of a chocolate teapot. Also perhaps confirming points made by many of you in the comments section we are finally shifting back away from self-employment as it fell by 30,000 to 4.76 million as employment rose by 427,000.

Wage growth

This is both better and something of a curate’s egg.

Between December 2016 to February 2017 and December 2017 to February 2018, in nominal terms, both regular pay and total pay increased by 2.8%.

The better bit comes from the fact that on this measure it has improved over the past few months and according to our official statisticians it has done this.

regular pay for employees in Great Britain increased by 0.2% while total pay for employees in Great Britain increased by 0.1%.

Of course that relies on the really rather woeful ( we are back to imputed rent) headline inflation measure they use as we are still slightly below on their previous measure and more than 1% below using the measure before that ( RPI). Is there a trend there?

Where it is a curate’s egg is two-fold. Firstly given the employment situation it should be much higher if the past is any guide and will have many Ivory Towers gasping for air. Secondly the last three months from December to February have gone 3.1% then 2.8% and now 2.3%. Best of luck finding an upwards trend in that! Your only hope is that the numbers are erratic.

Unemployment

This looked set to rise and indeed we had seen some flickers and hints of that but it was replaced this time around by this.

For December 2017 to February 2018, there were: 1.42 million unemployed people, 16,000 fewer than for September to November 2017, 136,000 fewer than for a year earlier and the lowest since June to August 2005.

For some reason the ranks of unemployed men are shrinking much faster than that of women for which I have no good explanation.

Inactivity

This is a subject often ignored but we do seem to have a difference with the US and its participation rate issue.

the economic inactivity rate for people was 21.2%, lower than for a year earlier (21.6%) and the joint lowest since comparable records began in 1971.

Comment

The UK performance on the quantity measures of the labour market would be described as “outstanding” by the now sadly departed Drill Sargeant in the film Full Metal Jacket. But as we have observed so many times the relationship between it and wages growth has broken down. There has been some new research on this subject from David Bell and David ( Danny) Blanchflower.

We also provide evidence that the UK Phillips Curve has flattened and conclude that the UK NAIRU has shifted down. The underemployment rate likely would need to fall below 3%, compared to its current rate of 4.9% before wage growth is likely to reach pre-recession levels. The UK is a long way from full-employment.

I have a lot of sympathy with those who argue that under employment is an issue although it is sad to see the Phillips Curve being resurrected from its grave yet again. Also whilst it is about the UK it is hard not to think of Japan and its lack of wage growth with unemployment under the threshold. Of course the mention of an unemployment threshold will send a chill down the spine of the Bank of England economics department as we wonder if 3% will be the new 7%?

The reality is that for all the economic good news the state of play is this and remember this involves what we might call a favourable definition of inflation plus puts self-employed wages under the floorboards.

average total pay (including bonuses) for employees in Great Britain was £486 per week before tax and other deductions from pay, £36 lower than the pre-downturn peak of £522 per week recorded for February 2008