Today brings us up to date or rather more up to date on the official average earnings or wages data for the UK. So far it has not really picked up the optimism shown by private-sector surveys like this on Monday from Markit.
In particular, latest data indicated one of the fastest
rises in income from employment in the nine-year
survey history (exceeded only by the upturn
reported in July 2016).
That looks good until we note that those nine years have been ones of relative struggle especially for real wages. Also if we look back to the summer of 2016 for the apparent wages boom we see that on the official rolling three-month measure wages growth peaked at 2.7% as autumn turned to winter. So not a great amount to write home about.
Also at least some of the pick-up was due to the rise in the National Living Wage which has welcome features but of course wage rise by diktat is different to wage rise by choice.
People aged 25-34 were the most likely to report an
increase in their earnings. This provides a signal
that pay rises ahead of changes to the National
Living Wage threshold had helped to boost the
income from employment index in March.
However the Markit summary was very upbeat.
The strength of the survey’s employment figures in
March is an advance signal that wage pressures
are starting to build. While higher salary payments
will help offset sharply rising living costs faced by
consumers, it also adds to the likelihood of
additional interest rate rises in 2018.
So in their view the Bank of England is targeting wage rises rather than the CPI measure of inflation it claims that it is. In which case no wonder Bank Rate is still at its “emergency” 0.5% level. This morning has seen some support for this in the markets as short sterling futures ( an old stomping ground of mine) have been falling as for example the June 2019 contract has fallen 0.05 to 98.74. Also open interest has done this.
the ICE Three Month Short Sterling Futures contract achieved two consecutive open interest records of 3,896,252 contracts on 16 March 2018 and 3,867,976 contracts on 15 March 2018. The previous open interest record was 3,801,867 contracts set in July 2007.
So people have placed their bets so to speak and as this contracts run ahead they are forecasting a Bank Rate of 1% in a year and a bit. Of course if they were always right life would be a lot simpler than it is.
A possible troubling consequence of this has popped up the news this morning. From the Financial Times.
Trouble on the UK high street: Carpetright, Mothercare and Moss Bros all report strains
As retail is a low payer in relative terms are the rises in the NLW something which has put it under further strain? Of course there are plenty of other factors but in a complicated world something good could also be the straw that broke the camel’s back.
Intriguingly the Markit survey was bullish on this front too.
At the same time, UK households are the least
gloomy about their job security for at least nine
years, which provides a further indication of tight
domestic labour market conditions.
This of course contradicts the last set of official data which hinted at a turn in the long-running improvement in employment. Ironically the official data with its swing in employment growth will have helped the recent renaissance in productivity growth which you will recall started more of less about when the Office for Budget Responsibility downgraded forecasts for it.
NHS pay rise
There has been quite a bit of speculation on this front today with the BBC reporting this.
More than a million NHS staff, including nurses, porters and paramedics, could expect average pay increases of over 6% over three years, the BBC understands.
The deal, expected to be formally agreed by unions and ministers later, could cost as much as £4bn.
If approved, workers in England could see their pay increase almost immediately.
The deal is tiered – with the lowest paid getting the biggest annual rises.
Although as we have noted before the position is much more complex than it may look.
Last year, half of staff received rises worth between 3% and 4% on top of the 1% annual pay rise.
Public sector pay seems to have been rising anyway as the 1.4% of the end of 2016 gets replaced with the 2% of the end of 2017.
There was finally some better news for wages growth which backed up the Markit survey.
Latest estimates show that average weekly earnings for employees in Great Britain in nominal terms (that is, not adjusted for price inflation) increased by 2.6% excluding bonuses, and by 2.8% including bonuses, compared with a year earlier.
This means that the official view on the real wage picture is this although I have to object to the way that an inflation index depending on fantasy numbers ( Imputed Rent) or CPIH is used here.
Between November 2016 to January 2017 and November 2017 to January 2018, in real terms (that is, adjusted for consumer price inflation), regular pay for employees in Great Britain fell by 0.2% while total pay for employees in Great Britain was unchanged.
If we look back we see that past months have been revised higher so that the last report was 2.7% and not the 2.5% reported back then. So we see that real wages look set to move back into positive territory and may already have done so using the CPI style inflation measures but not the RPI measure the establishment so dislikes.
In addition the employment situation continued to improve.
There were 32.25 million people in work, 168,000 more than for August to October 2017 and 402,000 more than for a year earlier.The employment rate (the proportion of people aged from 16 to 64 who were in work) was 75.3%, higher than for a year earlier (74.6%) and the joint highest since comparable records began in 1971.
Whereas unemployment provided first good and then not so good news.
The unemployment rate (the proportion of those in work plus those unemployed, that were unemployed) was 4.3%, down from 4.7% for a year earlier and the joint lowest since 1975.
However the labour force must have grown as we are also told this.
There were 1.45 million unemployed people (people not in work but seeking and available to work), 24,000 more than for August to October 2017 but 127,000 fewer than for a year earlier.
Let me type the next bit using a part of my keyboard that is used so little it is covered with dust. There may be some evidence that the Bank of England view on wages may be at least partially correct. Care is needed as you see if the past had not been revised higher then January would have looked really good whereas now the overall sequence is a little better. Thin pickings maybe but when you record is as bad as theirs any port in a storm is welcome.
Also we see that employment has continued to rise as we observe a double whammy of better news. Ironically I guess that may bring back a flicker of productivity worries as we mull a falling unemployment rate but rising unemployment. Maybe the short sterling futures market was ahead of the game although of course it is relying on an unreliable boyfriend to back up his promises.
Meanwhile let me give you my regular reminder that the average earnings numbers ignore firms of less than 20 employees which means that for it the 4.78 million self-employed disappear into a black hole.