UK hours worked have fallen 12% since the Covid-19 pandemic began

This morning has brought the focus back on the UK and the labour market release has brought some better news. Sadly the unemployment numbers are meaningless right now so we need to switch to the hours worked data for any realistic view.

Between April to June 2020 and July to September 2020, total actual weekly hours worked in the UK saw a record increase of 83.1 million, or 9.9%, to 925.0 million hours.

Average actual weekly hours worked saw a record increase of 2.7 hours on the quarter to 28.5 hours.

This is our first real look at a fullish set of data for the third quarter as we do not get the Gross Domestic Product or GDP numbers until Thursday. Will they also show a bounce of around 10%? Our official statisticians seem to have lost a bit of faith in their own figures as they quote the Markit PMI as back up.

The IHS Markit states that the recovery in business activity, which continued across the manufacturing and service sectors in September 2020, reflects the record increase in total hours worked on the quarter to September.

Perhaps they are unaware of the reduction in credibility for that series. However we can sweep this section up by noting that whilst we have much better news we are in a situation described by Foreigner.

But I’m a long, long way from home

That is because the numbers are still 12% below the pre pandemic peak of 1,052.2 million hours.

Redundancies

We had feared a rise in these, and sadly they have been coming.

Redundancies increased in July to September 2020 by 195,000 on the year, and a record 181,000 on the quarter, to a record high of 314,000 (Figure 3). The annual increase was the largest since February to April 2009.

In terms of what they tell us? We have an issue because we were seeing rises ahead of the further wind down and then end of the Furlough scheme which then saw a U-Turn extension to March. So much for another form of Forward Guidance. So the real message here is somewhat confused.

Using the tax system

This is a new innovation designed to give more timely data and to that extent it helps as we get a signal for October.

Early estimates for October 2020 indicate that the number of payrolled employees fell by 2.6% compared with October 2019, which is a fall of 763,000 employees……..In October 2020, 33,000 fewer people were in payrolled employment when compared with September 2020 and 782,000 fewer people were in payrolled employment when compared with March 2020.

These numbers have proved useful for a direction of travel but again due to the furlough scheme are much too low in scale. Also the wages numbers are best filed in the recycling bin.

Early estimates for October 2020 indicate that median monthly pay increased by 4.6%, compared with the same period of the previous year.

What they are most likely telling us in that job losses have been concentrated in the lower paid which has skewed the series.

Unemployment

Sadly the BBC seems not to be aware that these numbers are way of the mark and so are actively misleading.

The UK’s unemployment rate rose to 4.8% in the three months to September, up from 4.5%, as coronavirus continued to hit the jobs market.

The reason for that is the furlough scheme.

Experimental estimates based on returns for individual weeks show that the number of people temporarily away from work rose to around 7.9 million people in April 2020 but has fallen to around 3.9 million people in September 2020. There were also around 210,000 people away from work because of the pandemic and receiving no pay in September 2020; this has fallen from around 658,000 in April 2020.

Following international guidelines has led us up the garden path.

Under this definition, employment includes both those who are in work during the reference period and those who are temporarily away from a job.

Wages

We can now switch to the price of labour where according to out official statisticians there has also been some better news.

Annual growth in employee pay continued to strengthen as more employees returned to work from furlough, but pay growth was still subdued as some workers remained furloughed and employers were paying less in bonuses…..Growth in average total pay (including bonuses) among employees for the three months July to September 2020 increased to 1.3%, and growth in regular pay (excluding bonuses) increased to 1.9%.

As you can see below there were hard times still for some sectors.

During the early summer months, the industry sectors accommodation and food services and construction had seen the largest falls in pay, down more than 10% in April to June; in July to September, both recovered some loss although their average total pay growth remained down, at negative 1.8% and negative 3.9% respectively.

Actually the construction numbers seem curious as in my part of London it all seems to have got going again, but as ever London may not be a good guide.

We can see who is doing relatively well by switching to the most recent single month numbers which are for September. Here we see public-sector total pay was up 4.4% on a year ago. Also that the services sector has risen to 3,5%. Switching to manufacturing we see that annual growth has finally become positive but is at a mere 0.6%.

The improvement has followed through into the real wages data at least according to the Office for National Statistics.

In real terms, total pay in July to September grew at a faster rate than inflation, at positive 0.5%, and regular pay growth in real terms was also positive, at 1.2%.

In terms of actual pay those numbers mean this.

For September 2020, average total pay, before tax and other deductions, for employees in Great Britain was estimated at £553 per week in nominal terms. When expressed in real terms (constant 2015 prices), the figure in September 2020 was £509 per week, notably higher than the £488 per week estimated in June 2020.

It may be notably higher than June but is still below the pre credit crunch peak of £522 for the constant price series from February 2008. Actually that number looks a bit of a freak or more formally an outlier but even if we discount it we are still below some of the others from around then.

Comment

We find ourselves again mulling the way that conventional economic metrics have failed us. To be specific we see that underemployment measures are much more useful that unemployment ones as a 12% fall in hours worked gives a much more realistic picture than a 4.8% unemployment rate. In the short-term the improvement in the situation will clash with the November lock down and thus get worse. Although with the Hopium provided by the positive vaccine news from Pfizer there are now more realistic hopes for a better 2021.

Switching to the wages numbers I think there is a compositional effect making them also unreliable or rather more unreliable than usual. We even have an official denial to confirm this.

 that is, if the profile (percentage within each industry) of employee jobs had not changed between July to September 2019 and July to September 2020, the estimates of growth in total pay and regular pay would have been 0.1% lower than reported in this bulletin.

In my opinion the numbers are not accurate enough to claim that. So we know more but much less than some try to claim.

By the way those pushing the 4.8%  unemployment rate ( and thereby believing it) surely they should be pushing for the Bank of England to raise interest-rates as it is well below the levels it was supposed to?

 

UK Wages are falling again as we go back in time to 2006

The pace of UK economic data releases is relentless at this time of the month as we have several “theme” days. Officially they are to highlight areas but in fact the role is to hope that any bad data is quickly replaced by good and also to swamp us with too much information. For example UK trade is worth a day on its own but rather conveniently tends to get ignored on GDP day. This morning brings the labour market which is in crisis and I shall first look at the numbers which are providing some insight and then move onto the ones which are failing us.

Wages

We have been both fearing and expecting  a drop here and sadly that has arrived.

Growth in average total pay (including bonuses) among employees slowed sharply in March to May to be negative (at negative 0.3%) for the first time since April to June 2014; regular pay growth (excluding bonuses) slowed to 0.7%.

As you can see total pay has been dragged into negative territory by quite a plunge in bonuses, which is hardly a surprise in the circumstances. This means that those who concentrate on regular pay are missing the bus. Whereas we note that bonuses have gone -2.3%, -15.4% and then -23.5% in the latest 3 months. Weekly bonuses started the year at £34 in January but were only £25 in May.

This means that the wages growth we were happy to see this time last year has gone like this.

The rate of growth has been slowing since April to June 2019, when it stood at 4.0% for total pay and 3.9% for regular pay, the highest nominal pay growth rates since 2008. It had slowed to 2.9% in December 2019 to February 2020 immediately prior to the coronavirus (COVID-19) pandemic.

It was slowing anyway but now someone has stamped on the brakes.

We do get a breakdown for the last year as we see the public sector did much better than construction which is a shift as I recall it being the other way not so long ago.

Between March to May 2019 and March to May 2020, average pay growth varied by industry sector (Figure 3). The public sector saw the highest estimated growth, at 3.8% for regular pay, while negative growth was seen in the construction sector, estimated at negative 5.4%, the wholesaling, retailing, hotels and restaurants sector, estimated at negative 2.1%, and the manufacturing sector, estimated at negative 1.6%.

Have you noticed how the official release concentrates on the better regular pay series in the same way we are presented CPIH inflation? Let me help out by pointing out that in May the public-sector did even better for total pay growing by 4.8% on a year before. Whilst weekly bonuses have fallen there they are small ( £3 to £2). Construction total wages have fallen by 9.8% on May last year driven by a fall in bonuses from £30 to £19. Quite a shift to say the least.

Did Furlough Impact This?

Yes as you can see below 60% of those on furlough were only on it so 80% of previous wages.

The Office for National Statistics (ONS) has published estimates of approximately 30% of employees being furloughed in the last two weeks of May, and a little over 40% of furloughed employees having their pay topped-up above the 80% pay received under CJRS ( Coronavirus Job Retention Scheme)

This pulled pay lower.

The combined impact of this is a downward drag of a little over 3%.

So we are now at 169 on the total wages index compared to the recent peak of 174.2 in January

Real Wages

Here are the official numbers.

In real terms, total pay growth for March to May was negative 1.3% (that is, nominal total pay grew slower than inflation); regular pay growth was negative 0.2%, the difference being driven by subdued bonuses in recent months.

They have a favourable inflation number ( CPIH) but the impact of that is lower right now. There is of course the caveat that the inflation numbers are missing quite a bit of data due to the pandemic.

The perspective is this and the last sentence does some heavy lifting here.

For May 2020, average regular pay, before tax and other deductions, for employees in Great Britain was estimated at £504 per week in nominal terms. The figure in real terms (constant 2015 prices) fell to £466 per week in May, after reaching £473 per week in December 2019, with pay in real terms back at the same level as it was in March 2019.

Pay in real terms is still below its level before the 2008 economic downturn.

As it slips their mind to do this let me help out using total pay and indexing to 2015 Pounds. The previous peak of February 2008 of £522 per week seems a statistical aberration so you can either use it or the £507 of May 2008 to compare to the £490 of this May, and yes this is flattered by the woeful inflation number used. A lost decade of twelve years and counting…..

Thirty years of hurt
Never stopped me dreaming ( Three Lions)

However not everyone is losing and thank you to Lynn Lewis and Ben McLannahan for this.

pay at @GoldmanSachs  up by almost a fifth in H1

Time to remind ourselves of this one more time.

The first thing you need to know about Goldman Sachs is that it’s everywhere. The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. ( Matt Taibbi)

Employment

So having sorted out the price of work how much was actually taking place? The best guide comes below.

Between March to May 2019 and March to May 2020, total actual weekly hours worked in the UK decreased by 175.3 million, or 16.7%, to 877.1 million hours (Figure 4). This was the largest annual decrease since estimates began in 1971, with total hours dropping to its lowest level since May to July 1997……..Average actual weekly hours fell by a record 5.5 hours on the year to a record low of 26.6 hours.

Indeed even this is an understatement it would seem

Experimental work with adjusted methodology suggests the use of the existing methodology has understated the reduction in the actual numbers of hours worked by approximately 5% to 6%

So the real fall looks to be of the order of 22%.

Another perspective is provided by the analysis of the Pay As You Earn ( how many are paying tax) figures.

In June 2020, 74,000 fewer people were in paid employment when compared with May 2020 and 649,000 fewer people were in paid employment when compared with March 2020.

Comment

We see that the wages situation is grim with both nominal and real wages falling again. That means that the journey to the previous peak looks ever longer. A more positive view is that there is a small flicker in the May figures so there may be signs of a recovery from the lows. On the other side is the furlough scheme which in a broad sweep is responsible for the wages drop in return for keeping people employed. When it ends though we will see unemployment rise and whilst some will return on normal wages we have already seen wage cuts applied. I expect more of them.

“Following intensive negotiations between Balpa and Ryanair a package of cost savings was put together,” Balpa said. “Pilots have agreed to accept a 20% pay reduction in order to save 260 of the jobs that were at risk, ( The Guardian)

Shifting back to conventional measures they are failing us as you can see.

The UK employment rate was estimated at 76.4%, 0.3 percentage points higher than a year earlier but 0.2 percentage points down on the previous quarter.

Really? Still at least we avoided a form of La Dolce Vita where unemployment supposedly fall, but even so this is hopeless.

The UK unemployment rate was estimated at 3.9%, 0.1 percentage points higher than a year earlier but largely unchanged compared with the previous quarter.

The Investing Channel