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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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