UK Employment surges in June

After yesterday’s news that inflation is not only rising but showing signs it will be here for the summer and autumn we have some better news for the UK economy today. It came from the labour market release.

The number of payroll employees showed another monthly increase, up 356,000 in June 2021 to 28.9 million…. For the first time since the beginning of the pandemic, some regions are now above pre-pandemic (February 2020) levels. These include North East, North West, East Midlands and Northern Ireland.

That is quite a monthly rise and provides some hope for the June GDP figures. There have been times in the credit crunch era where we have seen employment lead output in the official numbers. That is a reverse of economic theory but of course we have torn so many chapters out of those books. So after the 0.8% growth in May we can cross our fingers for June.

Next up on the hopium front was this.

There were 862,000 job vacancies in April to June 2021 – 77,500 above its pre-pandemic level in January to March 2020. All but one industry saw quarterly increases in their number of vacancies. In June 2021, the experimental monthly vacancies data, and the experimental Adzuna online vacancies data both continued to surpass pre-pandemic levels.

 

So both employment and vacancies had a really good June and let me praise our statisticians for speeding up their work and providing numbers for June as the previous system would only be at May. There are accuracy risks but especially at a time like this we are keen to be as timely as possible.

This coincides with what we were told last week by Markit/REC.

Permanent appointments growth hit a fresh series record, while the upturn in temp billings was among the fastest in the survey history. At the same time, vacancy growth hit a new series record.

As well as this from the Composite PMI report.

A rapid turnaround in staffing numbers continued in June,
led by additional hiring across the service economy.
Measured overall, the rate of private sector employment
growth was the strongest recorded since the series began in
January 1998.

So things here look good and ironically maybe a little too good in some areas.

In some key shortage sectors like hospitality, food, driving and IT, more support is likely to be needed to avoid slowing the recovery. ( Markit/REC )

Which has led to this response.

The government is to relax rules this month for how long lorry drivers can work, as a temporary fix for a severe shortage of qualified heavy goods vehicle (HGV) operators. ( Reuters)

Wages

For the unwary things look fantastic.

Growth in average total pay (including bonuses) was 7.3% and regular pay (excluding bonuses) was 6.6% among employees for March to May 2021.

Regular readers will be aware that I made a complaint to the UK Office for Statistics Regulation in March about this.

So after more than a decade of weak real wage growth that has been so poor we have failed to recover the previous high from 2008 we see that according to these figures all we needed was an economic depression.

Shaun Richards to Ed Humpherson: ONS Average earnings figures

There has been an effort to explain the numbers but sadly the headlines go around the world and have done so this morning.How often does the follow-up detail get read?

compositional effects where there has been a fall in the number and proportion of lower-paid employee jobs so increasing average earnings; and base effects where the latest months are now compared with the start of the coronavirus (COVID-19) pandemic when earnings were first affected and pushed down.

This to quote Carly Rae Jepsen this “really, really, really, really, really, really” matters because we are now telling people that UK real wages have recovered from the credit crunch slump. Next year when (hopefully) the economy has recovered we are likely to be wondering why real wages have hit trouble again when the issue is how it is measured not what is actually happening.

The Deputy National Statistician has written a bog explaining the issues which are exit effects via the annual numbers although he calls them “base effects” and compositional issues where last year lots of lower paid workers lost jobs. Thus if you then calculate an average you have a higher number even if no-one has had a pay rise, which is a pretty basic fail. Here are his thoughts.

Well, this month the headline regular earnings growth rate is 6.6%. We estimate that the base effect would reduce the headline rate by between 1.8 and 3.0 percentage points based on the two methods set out above. In addition, the compositional effect we estimate at 0.4 percentage points above pre-pandemic levels. This would give an underlying rate of between 3.2% and 4.4%.

So we have an underlying rate assuming he is right which is pretty much what we concluded for inflation yesterday ( of the order of 3.4%). So suddenly there is no earnings growth at all in real terms. I also note he had ducked the issue of bonuses so we know little more there.

Basically they do not know.

Our calculations of an underlying rate are there to help users understand base and compositional effects, but at risk of repeating myself, there remains a lot of uncertainty about how best to control for these effects.

So as people try to understand the economic effects of the pandemic they will be misled by the average earnings data which is why I reported them. Under the Quality standard “and should not mislead” is an objective.

Hours Worked

These have proved especially useful during the pandemic due to the way the response affected the other numbers. For example whilst I welcome the fall in the unemployment rate to 4.8% we will not fully know the state of play until the Furlough Scheme is over.

The estimated 5% of businesses’ workforce reported to be on full or partial furlough leave in late June 2021 suggests that approximately 1.1 to 1.6 million people were furloughed within the industries surveyed in BICS.

You can drive a double-decker bus through that estimate when surely we should know how many we are paying?

The Hours Worked numbers continue to improve.

In March to May 2021, total actual weekly hours worked in the UK increased by 23.3 million hours from the previous quarter, to 981.4 million hours (Figure 5). This coincided with the relaxing of coronavirus lockdown measures, which had stalled the recent recovery in total hours.

But we have a fair way to go.

However, this is still 6.7% below pre-pandemic levels (December 2019 to February 2020).

From other numbers such as GDP we know May was an improvement and after today’s release we have bigger hopes for June. But for now they remain hopes.

Comment

There is a fair bit of good news around here. June seems to have been a good month for employment and if we return to the Markit/REC report we think there have been wage rises. It reported increases for both permanent and temporary staff especially in London.

A sharp rebound in demand for labour and a notable fall in the supply of workers led to further rapid increases in both starting salaries and temp pay. Permanent starters’ salaries rose at the sharpest rate since July 2014, while hourly rates of pay for short-term staff increased at the fastest pace since October 2004.

As for this month that should continue but it is also true that supply shortages are appearing in some areas and the recent spate of isolations due to Covid-19 may impact too.

Hundreds of staff at Nissan’s car plant in Sunderland are self-isolating due to “close contact” with Covid-19, the company has confirmed.

It comes amid a surge in cases of the Delta variant of the virus in the north east of England.

The company, which employs 6,000 people at the Wearside site, said production in “certain areas” had been “adjusted” as it manages numbers off work. ( BBC )

That impact depends on the line of work undertaken because if you have few symptoms many have got used to working from home.

 

 

UK annual wages growth is not over 8% as reported earlier

This morning has brought some more positive news for the UK economy and it has several facets.

The number of payrolled employees has increased for the sixth consecutive month, up by 197,000 in May 2021 to 28.5 million.

So May brought strong employment growth for the UK and it is also an improvement for our statisticians who have made this part of their data more timely. There is of course higher risk in a more timely estimate but we have been behind other countries in this area. After all the US has already produced a full set of numbers for May. The UK employment numbers do tell the same story as the Market PMI release.

Capacity pressures and increasingly upbeat projections for
customer demand spurred greater staff recruitment in May. The latest increase in payroll numbers was the strongest since March 2015, with survey respondents citing a combination of new hires and the return of employees from furlough. There were many reports suggesting difficulties with staff availability, especially among consumer service providers.

So good news for Markit too who have been struggling in other areas.

If we now bring in a wider context we see that we still have ground to make up.

It is however 553,000 below levels seen before the coronavirus (COVID-19) pandemic. Since February 2020, the largest falls in payrolled employment have been in the accommodation and food services sector, people aged under 25 years, and people living in London.

A young person working in hospitality working in London has had it really rough and yesterdays 4 week extension to restrictions will only add to the issue. Things have got better but slowly.

These three groups have also seen the largest monthly increases but are still well below pre-pandemic levels.

Conventional Employment Measures

Perhaps the best measure throughout this period has been hours worked.

In February to April 2021, total actual weekly hours worked in the UK increased by 7.2 million hours from the previous quarter. This coincided with the relaxing of coronavirus lockdown measures, which had stalled the recent recovery in total hours. However, this is still 77.0 million hours below pre-pandemic levels (December 2019 to February 2020) to 975.2 million hours.

They edged forwards but we are back in a world where we only have data up to April. We know from Friday’s GDP release that the economy was growing strongly ( over 2%) and if anything the improvement here is a bit disappointing after that. Perhaps May will catch up.

The more conventional metrics tell us this.

There was a quarterly increase in the employment rate of 0.2 percentage points, to 75.2%, and a quarterly decrease in the unemployment rate of 0.3 percentage points, to 4.7%.

Unemployment

Regular readers will be aware that this has been a problem both in the way it is measured and its rise. Although it is hard not to have a wry smile at the fact that it is reported as well below the level at which former Bank of England Governor Mark Carney assured us ( Forward Guidance) he would raise interest-rates. Of course he did no such thing.

For now the elephant in the room in several contexts is this.

There is an outstanding question of what happens to those workers on furlough. The numbers have continued to fall and while we wait for the official data, our most recent (but uncertain) estimate comes from our business survey and is around 1.8m in May. ( @jathers_ONS )

That is quite a context to an unemployment total of 1,613,000 in April when the furlough numbers will have been even higher. Our Deputy National Statistician summarises the state of play here.

Will everyone currently on furlough go back to their employer? If not, this might cause employment to fall & unemployment to rise later in the year. But we don’t know what will happen yet. So we are not out of the woods yet.

I am a little unclear how he could even think briefly we are out of the woods but the uncertainty expressed is correct. We simply do not know.

Wages

Let us start by going to a place described by Mariah Carey.

Sweet fantasy (sweet, sweet)
You’re my fantasy
Sweet fantasy
Sweet, sweet fantasy

Oh as reported by the Office for National Statistics.

April 2021 saw a growth rate of 8.4% for total pay and 7.3% for regular pay which feeds into the strong 5.6% average growth rate for February to April 2021.

We find ourselves at a destination I warned our statisticians about back in March.

Response from Ed Humpherson to Shaun Richards: ONS Average earnings figures

Or rather one of the destinations because a future swing the other way seems likely.

There is at least an effort to begin to explain things although sadly that will go straight over the heads of the reports which simply copy and paste the official figures.

We have become used to noting this but it comes with a kicker.

Latest data show the compositional effect is approximately 2.5%, compared with approximately 1% before the pandemic affected the workforce.

For newer readers this effect is essentially that more lower paid workers lost jobs which raises the average wage for those who remain employed and thus wage growth is reported. Or things that are worse are recorded as better. But the kicker is the confession that the numbers were always flawed. Indeed at times of low wage growth a 1% issue is very significant. Looking back through the series I note that reported average earnings growth of 2.8% in January 2020 was in fact 1.4% of growth and 1.4% of compositional effects which changes the picture considerably.

If we try to look back two years to remove what have become called base effects we gain little and in the case of regular pay nothing.

Looking at levels before the coronavirus pandemic we can compare April 2021 with April 2019 where average total pay growth was 7.1%, so lower than the growth when comparing with April 2020 (8.4%). For regular pay growth comparison with both periods was similar, at 7.2% when comparing April 2021 with April 2019 and 7.3% when comparing with April 2020.

There has been an additional level of uncertainty provided by the swings in the furlough scheme. It is of course good that it is reducing but in this context we are left scratching our heads a bit.

We have published estimates indicating that 21.8% of the workforce were on furlough leave at the end of April 2020, compared with 10% of employees being furloughed in the last two weeks of April 2021. The lower proportion of workers on furlough has contributed towards the strong growth when comparing pay in April 2021 with April 2020.

Comment

We can pick out what we can from the wages numbers. April saw a £5 a week rise to £571. The main drivers of this were the finance and business industry which saw a £28 a week rise to £758 and the construction sector which saw a £9 rise to £659. The latter is a little awkward when only last Friday we were told this.

Construction output fell 2.0% in April 2021………Monthly construction fell by 2.0% in April 2021 because of declines in both new work (2.9%) and repair and maintenance (0.6%).

Perhaps it was a lagged response to previous rises. The finance numbers were pushed higher by strong bonuses, was it a good bonus season in the City of London. Also there is a counterpoint to this coming out on a day when we see wages cuts. Now you may have issues with public-sector pensions and this is not in the wages figures but it is a cut.

NEW: UK university employers have overwhelmingly supported proposed cuts to guaranteed #pension benefits for hundreds of thousands of sector workers. ( @JosephineCumbo) 

Returning to the quantity figures things are getting better and we can hope for an even stronger increase in hours worked in May. But it is still a depression and the end of the furlough scheme could quite easily set us back.

 

Does higher inflation mean higher economic growth?

The issue of inflation is a hot topic in economics right now. Indeed this morning has suggested that to quote Glenn Frey the heat is on in India.

The wholesale price-based inflation hit an all-time high of 12.49% in May on the back of a spike in prices of manufactured products, crude petroleum, and mineral oils.

It touched the double-digit mark of 10.49% in April (2021). This is the fifth straight month of an uptick in WPI inflation. ( Business Today)

It is the five months in a row of rises which bothers me more than the all-time high which is influenced by the pandemic driven lows of last year. The vibe has also been reinforced by this.

BRENT CRUDE OIL FUTURES RISE TO $73.41 A BARREL, HIGHEST LEVEL SINCE APRIL 2019 ( @NordnetAxel)

So the issue in May has pushed into June and as an aside a higher oil price has negative consequences for the Indian economy. But for out purposes today the issue is one of inflation risks.

The Reserve Bank of India

We can stay on the sub-continent for the latest central banking missive assuring us that inflation is good. Earlier this month the RBI produced a working paper looking at this.

The concept of threshold inflation is linked to the level of inflation beyond which it becomes detrimental to economic growth.

There are a lot of begged questions in the assumptions but applying them to India the researchers get to this.

 For macroeconomic policy targets consistent with maintaining fiscal deficit at 6.0 per cent and current account deficit at 2.0 per cent of GDP, our estimates suggest a threshold inflation level of 6.1 per cent and optimal growth rate of 7.5 per cent for India.

As you can see they are juggling several plates at once but in principle they are replicating the western approach. What I mean by that is we are seeing an attempt to raise the inflation target by 50% or from 2% to 3%. Well in India a 50% rise takes you from 4% to 6%. The extra 0.1% is the same as when Everest was estimated to be 28,000 feet high so they made it 28,002 as otherwise they thought they would not be believed.

They then ram their point home in case we missed it.

If we consider the inflation target at 4 per cent instead of the threshold level of 6 per cent, the long-term growth rate would decline by about 80 bps.

By contrast if you miss the inflation target on the upside the issues created are relatively smaller, in fact much smaller.

On the other hand, if we consider the inflation target of 8 per cent instead of the threshold level of 6 per cent, the long-term growth rate would decline by only about 30 bps.

I suppose it is kind of them to so explicitly confirm one of the themes of my work.

 Thus, the trade-off between long-term inflation and growth is not symmetric on both side of the threshold inflation.

If you prefer it can be expressed in terms of economic growth.

When the inflation target is less than the threshold level, the sacrifice is 0.4 per cent point growth per one per cent point reduction in long-term inflation. However, if the inflation target exceeds the threshold level, the sacrifice of growth is only 0.15 per cent point per one per cent point increase in the long-term inflation.

Extraordinarily clever for a number if not picked at random has in fact been pulled out a hat.

The claimed gains are put up simple terms for politicians.

If the threshold inflation rate is somehow considered to be too high, the policy makers can choose a lower inflation target only by consciously sacrificing long-term real growth of GDP.

Problems

In a country with so many poor I am sure that pretty much everyone reading this with thing of it as a big deal.

 Of course, there are arguments in favour of lower inflation rate in terms of its favourable redistribution impact particularly on the poor and the financial stability concerns.

The problem here is one of the swerves in this type of analysis which appears in the early part.

The Keynesian analysis of non-neutrality of money assumes that nominal wages are more rigid than prices. Increase in money resulting in higher price level, therefore, leads to a decrease in real wages that would bring about an improvement in real economic activity (Rangarajan, 1998). This was loosely interpreted to mean higher inflation resulting in higher growth.

They deny this is being used and instead point to this.

 In an open economy, the rate of inflation can become an important determinant of the steady state rate of growth. It can influence TFPG through its effect on investment and effectiveness of research and development expenditure (Briault, 1995).  ( TFPG = Total Factor Productivity Growth )

Thus they are in fact assuming that higher inflation leads to higher economic growth via what we have come to call the “productivity fairy”. Personally I do not see a link between inflation and productivity. Also on the dynamic world in which we live and exist there is no “steady state rate of growth” and the conclusion is thus castles in the sky.

 Thus, the steady state growth would occur at the threshold inflation in an economy left to market forces. Since this is a base case, the government can avoid unnecessary adjustment costs in practice by targeting long-term inflation and growth respectively at the threshold inflation and steady state growth.

Comment

The conclusion is an interventionist and central planners dream. It feels like something from the 1960s and 70s with a “white-heat of technology” add on. In the credit crunch era we have seen a familiar trend where such ideas start with a single central bankers and the spread. Some years back it was Charles Evans of the Chicago Fed pushing the higher inflation target line and now we see it has become official policy.

With inflation running persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer‑term inflation expectations remain well anchored at 2 percent.

Actually that is now out of date as inflation is not only above target but if the May CPI reading is any guide may well be considerably above it.

Where this falls down is that the research is designed to come to the conclusion that it does. I have already highlighted the productivity issue and with it comes the related one of wages and real wages in particular. This has been a troubled area for years and maybe decades for example the “lost decade” in Japan is one of a lack of real wage growth and my home country the UK has struggled too. Thus, in my opinion, and there is plenty of evidence to back it up you cannot simply assume higher inflation will lead to higher wage growth. The nominal wage rigidities of economic theory have got worse. We see examples of this regularly in the news and this may well be backed up by official numbers too.

Real average hourly earnings for all employees decreased 0.2 percent from April to May, seasonally
adjusted, the U.S. Bureau of Labor Statistics reported today…..Real average hourly earnings decreased 2.8 percent, seasonally adjusted, from May 2020 to May 2021.

Then we have the issue of assuming a steady-state for an economy at a time when we have seen waves of uncertainty. It is hard not to laugh as the theorists describe their theoretical world but describe one which has not much of a relation to the real one leaving us Seasick like Steve.

Cause I started out with nothing
And I’ve still got most of it left

Podcast

Is poverty on the rise in the UK?

Today the IPPR has released a report on poverty in the UK. As always care is needed as the answer mostly depends on how you define poverty starting with whether you chose an absolute definition or a relative one. With the latter poverty is always likely to be with us no matter how well off we become. But their report covers a couple of the themes of my work beginning with the issue of housing costs.

This is caused by the growth of people living
in the private rented sector and the increasing cost of rents: housing costs for private tenants have risen by almost half (48 per cent) in real terms over 25 years.

The next is the struggles that real wages have seen especially since the credit crunch hit just over a decade ago.

Working poverty – poverty experienced in households where one or more people are in work – has been rising under successive governments since 2004.

Also there is the issue of how you measure inflation because the IPPR is suggesting that something is wrong with our official measures.

We argue for greater priority to be given in welfare and economic policy to bringing down the high costs of
housing, childcare and other essential goods as a proportion of household income, as well as reforms to genuinely ‘make work pay’.

After all we are supposed to have been in a period of low inflation so how is the cost of these things “high”? Also this poses a challenge for the Bank of England which via its accommodative monetary policies is trying to make the cost of them even higher.

Housing Costs

The attention here is on those who rent.

Rising in-work poverty can be otherwise characterised as growth in poverty rates among renters. Rates of poverty have risen considerably among those in the private
rented sector since 2000, with smaller but still significant growth among those living in social housing, who still have the highest overall rates of in-work poverty.

For those unaware of the UK social housing structure it used to be state supplied as for example my maternal grandparents lived in a flat provided by the local council hence the name council house ( or flat). This switched to a hybrid where housing associations have increasingly supplied social housing. This has also provided trouble for the public finances as they have been regarded as state and then private which has been a big deal as it is a matter of around £50 billion.

Can anybody think why this is so?

 In 1994/95, 65 per cent of under 40s were mortgagers, but this had fallen to 38 per cent by 2018/19.

It is because house prices have risen so much that they cannot afford them. Thus there has been a shift towards this.

At the same time, the proportion of young renters has tripled (DWP 2020a). This means that over three million additional under 40s (ibid), instead of paying their own mortgage and building their own wealth, are paying the
mortgages and building the wealth of their landlords.

Which according to the IPPR means this.

The rise of in-work poverty among the different tenancy groups is mirrored heavily by the extent to which housing costs have risen among these groups. Throughout
the period, the costs for renters (both social and private) have been rising rapidly, while those on the property ladder have seen costs fall in real terms, as record low
interest rates have kept costs down for mortgagers.

Care is needed here as they are ignoring the issue of higher house prices. Mortgage costs may be low now but if you have paid a high price ( house prices keep making new records) you are at risk if they rise. Also they are assuming house owners have a mortgage when a bit over 30% buy outright. The latter is not especially relevant for a poverty analysis but mortgagers are at the moment at quite a potential risk.

Also home owners can be divided into two groups. Those who have been home owners for a while have low mortgage rates on smaller mortgages and positive equity, sometimes lots of it. Whereas newer buyers have had to take large mortgages and pay high prices which leaves them in quite a risky position.

Living Costs

This to my mind is an important issue and let me illustrate with this from Gracie.

“PPE to do my job when I’m not working from home/for my daughter when she’s in school has also cost £40+. This covers the masks (I had to buy extra as my daughter’s school decided to make plain black ones essential when I had previously bought other colours, so this was
an even bigger outlay), hand sanitiser which I could only get from my local shop as everywhere else was out of stock but they doubled the prices, and face masks. Employers should be providing these!”

This is a recent development but highlights an age old issue in inflation measurement. This is between an economic style measure ( for example the CPI family) and a living-costs measure which the RPI represents. Under an economic style measure if you bring such things in you adjust the basket. There is a road here where Gracie pays the higher costs they go in the basket and then as new suppliers arrive and prices fall we see inflation recorded as lower and not higher.

The alternative approach based on living costs would look to recognise that spending and costs are higher. There is a new effort planned for the UK called the Household Costs Index which measures what is spent. In practice it is always difficult to catch the issue above but at least it will recognise it.

Oh and I tried to get our official statisticians to factor in such new costs but was told they are not important enough.

Expenditure on products such as face coverings and hand sanitisers has inarguably increased over the last 7 months. However, based on the scanner data we have been receiving we believe that, as a proportion of total expenditure, it remains below the levels that price movements would have any discernible impact on our figures – essentially these products would receive a 0% weight in an index. Though we will continue to monitor this.

Wages

Even though they have risen they have not always kept up with inflation.

Despite real growth in wages amongst the working poor over the past decade, driven in part by a higher minimum wage, in-work poverty has continued to increase.

Comment

There has been a shift in the UK situation as the rises in the state pension via the “Triple-Lock” and higher house prices have benefited pensioners and reducing poverty in this group. Although this was on odd thing to add.

along with benefitting from generous private pension provision in many cases.

Generous pension provision these days is mostly to be found in the state sector.

I do have sympathy with this point as capital has gained more than labour I think.

The national focus on higher per capita
GDP growth and the regional focus on higher per capita GVA growth have delivered little for working families over the past two decades.

But fixing this is not as easy as implied.

Given the concentration of working poverty in low paid sectors such as retail, care and hospitality, it must link to industrial strategy and skills policy, increasing wages
in those sectors as well as opportunities for progression out of low paid work through better access to training and skills

For example high street retail is already in a crisis and higher wages would push more groups under.

Switching back to housing costs there is a big elephant in the room. This is that the gist of the IPPR report is very different to the official measure of rents used in the UK. That leads you to believe there has been little and based on it we are now supposed to have regained the lost ground for real wages. I have argued many times that the rent measure is a mess and for a while the Office for National Statistics agreed with me when they discovered a discontinuity in their series. There is a further issue here in the the IPPR have used such numbers ( from CPI) to calculate their version of real numbers.

Finally this uses a relative measure of poverty under which Jesus was right.

The poor you will always have with you

That will be true no matter how well off we became. But it does highlight something of another shift in our society.

These landlords are also receiving at least £11.1 billion in
state spending on housing support annually.

 

 

Does anybody actually believe UK wages growth is 4.5%?

This morning has brought us the latest data on the UK labour market. One of the lessons of the Covid-19 pandemic is that the metrics used have creaked and groaned under the strain. An example of this is the unemployment rate which posted some welcome news.

The UK unemployment rate was estimated at 4.9%, 0.9 percentage points higher than a year earlier but 0.1 percentage points lower than the previous quarter.

That number has two positive elements as it has a quarterly fall as well as being at 4.9% much lower than we would have expected due to all the economic disruption. But the rub as Shakespeare would put it comes from the furlough scheme.

These experimental weekly Labour Force Survey ( LFS) estimates estimates show that before the first lockdown the estimated proportion of people temporarily away from work (that is, the total number of people temporarily away from work divided by the total number of people in employment) was approximately 7.5%…………It remained elevated and averaged around 15% in the first two months of 2021.

That is another way of looking at the impact of the furlough scheme and looking ahead someone needs to rethink this.

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.

Hours Worked

This has become by far the most useful metric of what is actually happening.

In December 2020 to February 2021, total actual weekly hours worked in the UK was 959.9 million hours (Figure 2). This was a decrease of 20.1 million, or 2.1%, from the previous quarter, coinciding with the introduction of further coronavirus (COVID-19) lockdown measures which has stalled the recent recovery in total hours……..Average actual weekly hours worked saw a decrease of 0.6 hours on the quarter to 29.6 hours.

We see that the latest lockdown has pushed us lower again and affected women more than men, presumably because more of them work in hospitality and the like.

Total hours worked for men saw a decrease of 9.6 million, or 1.7%, to 562.5 million hours, and total hours worked for women saw a decrease of 10.5 million, or 2.6%, to 397.3 million hours.

The overall picture is shown by this.

The total number of weekly hours worked was 959.9 million, down 92.3 million hours on the same period the previous year

This means that we have seen a fall of the order of 8.8% which means this has been an economic depression and I am a little surprised that more places are nit reporting it as such. Also if you look at the chart below over the longer term there are two previous messages. We see that hours worked had a strong recovery post credit crunch but before the pandemic we seemed to be hitting a peak which poses a question for the future.

Average Earnings

I am afraid that these belong in the fiction section of your local bookstore.

The rate of annual pay growth was positive 4.5% for total pay and positive 4.4% for regular pay in December 2020 to February 2021.

For newer readers I made a formal complaint to the UK statistics authorities about this issue and had some success.

Response from Ed Humpherson to Shaun Richards: ONS Average earnings figures

So we now get this explanation.

Average pay growth rates have been affected upwards by a fall in the number and proportion of lower-paid jobs compared with before the coronavirus (COVID-19) pandemic. Therefore, it is estimated the net impact of recent job losses is to increase the estimate of average pay by approximately 1.9% – suggesting an underlying wage growth of around 2.5% for total and regular pay.

So I have got them to clearly point out that at least 2% of this is misleading. Personally I think that they are so misleading that they should be either suspended or have their national statistics status removed. In simple terms a lot of lower paid workers have lost their jobs so the new average is higher and that could happen without anyone receiving a pay rise.

In fact there is a another potential shambles on its way because once the economy is recovering and the lower paid workers return we may well see this.

It is possible that headline average wage growth estimates will be negative in coming months. However, those negative estimates would reflect composition and base effects depressing the average wage, rather than wage cuts for workers.

That is from a White House briefing showing that the US has had the same issues. They spell it out here.

Most workers did not receive historic raises in April of 2020, even though that is what average wages suggest.

So the numbers record rises in a collapse and seem likely to show falls in the recovery. I am not sure how much more misleading they could be! But the show must go on.

Sadly even a brief look at social media shows these numbers being sent out as facts.

If we switch to the Bank of England Agents we get a very different picture.

Pay growth remained subdued. Sectors that have been most affected by the pandemic expected to freeze pay again this year and a few contacts planned to defer pay decisions until there is more clarity over the economic outlook.

Of course some people will have done well through the pandemic and I have met a couple of examples recently in a web developer and online fitness classes. These are examples of this from the Agents.

 However, some businesses expected to raise pay this year, either because they froze pay last year, their business is doing well or they are concerned about retaining skilled staff.

But the overall picture is nowhere near even the lower growth figures presented by our official statisticians, in my opinion.

March

The UK quarterly figures are always lagged so let me give our statisticians credit for trying to bring the numbers more up to date.

Early estimates for March 2021 indicate that there were 28.2 million payrolled employees (Figure 1), a fall of 2.8% compared with the same period of the previous year and a decline of 813,000 people over the 12-month period. Compared with the previous month, the number of payrolled employees decreased by 0.2% in March 2021 – equivalent to 56,000 people.

As you can see things got a little worse, but the outlook has turned more positive in April.

According to Adzuna, on 9 April 2021, total online job adverts reached 100% of their February 2020 average level, a 3 percentage point increase from 1 April 2021. This is the highest proportion of online job adverts observed since 6 March 2020, before the first national lockdown was imposed across the UK.

Comment

The Covid-19 pandemic has not only given our economy a shock it has also given the measures we use for it a shock too. Regular readers will be aware that the self-employed and indeed those in businesses with less then ten employees are omitted from the numbers. That ongoing issue will impact now but has been dwarfed by the lack of any measure to find out any sort of typical experience. As it is we are told that lower paid workers losing their jobs has led to a surge in pay when it means nothing of the sort. If we throw in the issues with inflation measurement highlighted by the omission of owner occupied housing it is hard to know where to start with the numbers below. I will simply point out that official statistics are supposed not to mislead.

In real terms, total pay is now growing at a faster rate than inflation, at positive 3.7%, and regular pay growth in real terms is also positive, at 3.6%.

Even their response to me still leaves us with a number lacking credibility.

suggesting an underlying wage growth of around 2% for real total and real regular pay.

They should be worried that the most reliable reverse indicator we have agrees with them.

The Office for Budget Responsibility’s economic and fiscal outlook published in March 2021 reported that earnings growth is likely to increase in 2021 and in 2022

Even the hours worked figures which have given us some sort of realistic steer are noy as accurate as we might have thought.

Imputation used for the Labour Force Survey was not designed to deal with the changes experienced in the labour market in recent months.

How much?

However, now that total hours have declined again, the experimental methodology is once again suggesting we are understating the reduction in hours, by approximately 2%.

So the decline may have been even worse than we thought as we cross our fingers for a speedy recovery.

Official Average Earnings numbers are both misleading and wrong

This morning I allowed myself a small pat on the back. Having got frustrated by the fact that as I look around the world the wages and average earnings figures being reported are not to put too fine a point on it a load of rubbish, last month I took action. I reported the UK version to the UK Statistics Authority. My point was that it made no sense to report 4.7% average earnings growth at a time when this was the situation.

When you consider that we are in a pandemic situation with the economy having contracted by around 10% that number immediately fails any basic sense test. If we stay within the same labour market release then we see that the hours worked figures have fallen by around 7% since the pre Covid-19 pandemic period.

Actually they also claimed the UK average earnings growth was such that we had now regained the real wages losses in the credit crunch era. I pointed out that this was bonkers.

So after more than a decade of weak real wage growth that has been so poor we have failed to recover the previous high from 2008 we see that according to these figures all we needed was an economic depression. If we project that forwards then if 2021 is as bad as 2020 then we will see extraordinary real wage growth! Checking back through the series we do not seem to have had annual wage growth as fast as we have now since April 2001.

Yes what we needed to fix our real wages issue was an economic collapse even lager than the credit crunch! Or if you prefer Madness.

You’re an embarrassment

Under the Quality element of their Code of Practice the numbers should not mislead ( they do) and under the Value element they should add value and insight ( they do not)

The bureaucratic response will be to instruct some researchers and PhD’s to prove me wrong but they could not.

However, having looked at the explanations for change in the statistics a simpler clearer explanation might have minimised the risk of misinterpreting the movements.

What will they do?

We have spoken with the team at ONS and expect ONS to improve the way it presents these issues in the next release of the statistics on 23 March.

Let me point out that this is a worldwide issue hinted at by the reply.

The changes in average wages in the October to December 2020 quarter were similar to changes seen in other countries for example in Canada, Australia, New Zealand and France.

It is an interesting tactic to reply by claiming others are wrong too but in terms of the issue I have seen it in the numbers from the United States and Norway too.

What has changed today?

The release is much clearer about the issue and opens with this.

Annual growth in average employee pay continued to strengthen, the growth is driven in part by compositional effects of a fall in the number and proportion of lower-paid employee jobs and by increased bonuses, which had been postponed earlier in 2020.

It is not quite so good that they then repeat the problem.

Growth in average total pay (including bonuses) among employees for the three months November 2020 to January 2021 increased to 4.8%, and growth in regular pay (excluding bonuses) increased to 4.2%; however, this growth will be affected by compositional effects.

The numbers are in fact even more ridiculous adding an extra 0.1% in each case. At least they do point out the issue and then give an improved version.

Current average pay growth rates are being affected upwards by a fall in the number and proportion of lower-paid jobs compared with before the coronavirus (COVID-19) pandemic; it is estimated the net impact of recent job losses is to increase the estimate of average pay by approximately 1.6% — suggesting an underlying wage growth of around 3% for total pay and around 2.5% for regular pay.

Real Wages

There has been an improvement here too.

In real terms, total pay is now growing at a faster rate than inflation, at positive 3.9%, and regular pay growth in real terms is also positive, at 3.4%. Average real pay growth rates are also affected by the compositional effect, it is estimated the net impact of recent job losses is to increase the estimate of average pay by approximately 1.6% – suggesting an underlying wage growth of around 2.5% for real total pay and around 2% for real regular pay.

They no longer explicitly claim we have regained the lost ground However there is a catch and sadly it will punish someone who does what looks like thorough research. This is because if you look at the regular pay data set it tells you that it is now some 3% higher than the previous peak. So any individual looking more deeply will be completely misled.

Comment

The essential problem is that it is possible for average earnings to show growth when no-one has had a pay rise. This would happen if people on low wages lost their job. Because when the next set of numbers is calculated they are simply omitted and on average workers have higher wages and Hey Presto! Except a number which should be a signal of better times is in fact recording that when things are worse. So unless you are running an I’m all right Jack ( or Jill) world you can see there is an issue here. Added to that is something I did not raise as I wanted to concentrate on the main issue. Those who work for smaller companies ( less then 10 employees) and the self-employed are completely ignored. So there is another upwards bias right now.

What is the number for what people might reasonably think is average earnings which is what those in a job have got? The Resolution Foundation has crunched some numbers.

The median pay rise over the year (to Q3 2020) for people staying in the same job was just 0.3%, and just 0.6% across all workers – the latter representing a real terms pay fall of 0.2%. This means at least half of all workers experienced a pay cut during this period.

We would love to see more up to date numbers! But it is a lower path than the official series.

So we see that the numbers are not fit for purpose and that some of the answer defy logic.

Between November 2019 to January 2020 and November 2020 to January 2021, average pay growth varied by sector (Figure 3). The finance and business services sector saw the highest estimated growth in total pay, at 7.6%.

Really?

A possible factor is where the furlough scheme has intertwined with actual pay. That seems to have distorted things. But to conclude we see that there is an irony. Because of the issues with GDP statistics there has been more emphasis on labour market ones. But we have found that the furlough scheme has exacerbated the flaws in the calculation of both unemployment and earnings which leaves them in perhaps an even bigger mess than GDP.

 

 

Link

The credit crunch put many economic measures under strain as their limitations were exposed. Now the Covid-19 pandemic has broken several of them. In fact one is so broken I will get to it before the wildly inaccurate unemployment numbers which provides something of a perspective. So let me hand you over to the UK Office for National Statistics.

Growth in average total pay (including bonuses) among employees for the three months October to December 2020 increased to 4.7%, and growth in regular pay (excluding bonuses) increased to 4.1%.

If you subject this to a basic sense test you see that an economic depression has apparently created the highest wage growth for quite some time. Indeed if we use the low level of reported official inflation real wage growth has surged to perhaps the highest level this century! Sadly it gets worse.

In real terms, average pay has rebounded from the sharp falls during early summer 2020, in December total and regular pay are at a record high.

So to fix the problem of such weak real wage growth that we had not after a decade recovered from the credit crunch inspired dip we needed an even deeper contraction? I run a polite blog so let me simply say that any basic check of reality should have stopped these numbers being produced as they are a serious embarrassment.

For December 2020, average total pay, before tax and other deductions, for employees in Great Britain was estimated at £571 per week in nominal terms. When expressed in real terms (constant 2015 prices) the figure in December 2020 was £523 per week, notably higher than the £488 per week estimated in June 2020.

Curiously they forget to report that it is also a record as it exceeds the £522 of February 2008. Only by £1 per week but a record is a record. This is not a repeated in the regular pay series.

Average regular pay was estimated at £534 per week in nominal terms. When expressed in real terms (constant 2015 prices) the figure in December 2020 was a record £489, after having fallen back to £464 per week in April 2020.

If we look at the series and the chart below is helpful. We had a fall as the pandemic hit which is logical but since then wages have simply gone through the roof.

 

The Official Explanation

This has several legs to it.

Analysis of Labour Force Survey (LFS) data highlights a recent decrease in the number of part-time jobs (which have a lower average pay), and jobs in some lower-paying occupations such as elementary occupations. …… It therefore appears that the net impact of recent job losses, when measured in terms of type of job and age profile of jobholder, is to increase the estimate of average pay by approximately 1.8%.

So 4.7% becomes 2.9%. There is another effort suggesting an effect of 0.1% which is below any likely measure of accuracy and is therefore of little use. Next comes this alternative.

This considered tenure of employees who fill the stock of jobs and suggests that a fall in new entrants to the labour market (who are lower-paid than average) has contributed to an increase in average pay, with a magnitude of approximately 1%.

The types of analysis are separate but may also be “not mutually exclusive,”. Make of that what you will.

Let me show you the 2 surveys used. Firstly from PAYE.

 In December 2020 aggregated pay increased by 3.3% compared with December 2019.

And now suddenly it does not.

This is particularly important to consider at present because both of the two main sources of information about number of employee or employee jobs paid through payroll (HM Revenue and Custom’s Pay As You Earn Real Time Information, and the Office for National Statistics’ (ONS’s) Monthly Wages and Salaries Survey) identify a year-on-year fall of close to 2.5%.

So basic data suggesting a fall of 2.5% somehow becomes a rise of 4.7%?!

I would remind you that the numbers do not include the self-employed and the ONS survey omits any business with less than ten employees. Oh and in case you thought it might be the health industry pulling the numbers higher.

The finance and business services sector saw the highest estimated growth in total pay, at 6.8%.

That seems to make very little sense of all. But even worse is this spotted by the Resolution Foundation.

This is backed up by sectoral pay growth: in December, earnings in arts, entertainment and recreation, one of the sectors hardest hit by the crisis, had risen by almost 15% in real terms compared to a year earlier.

So the theatre’s are back open and indeed packed? Rock and pop concerts are thriving? Maybe in one of the alternate universes visited from time to time by Star Trek but not this one.

Another check we can use is the Agents report from the Bank of England which seems to be from an alternative universe.

Contacts reported that pay growth remained subdued. There were continued widespread reports of pay being frozen or settlements deferred. Bonus payments were also lower compared with a year ago. However, temporary pay cuts made earlier in the year have largely been reversed. Most contacts expected pay growth to be restrained in 2021.

Unemployment and Employment

We know that due to the impact of the furlough scheme ( CJRS) that the unemployment numbers and hence the unemployment rate do not reflect a large amount of hidden employment. So let us look elsewhere for a guide. One more realistic area is hours worked. This brought improvements on two counts.

Between July to September 2020 and October to December 2020, total actual weekly hours worked in the UK saw an increase of 53.7 million, or 5.8%, to 978.7 million hours.

Average actual weekly hours worked saw an increase of 1.8 hours on the quarter to 30.2 hours.

The release does not tell us the overall decline in numbers so let me help out. Pre pandemic we saw 1052 million hours being worked so in spite of the improvement we are still some 7% below the previous peak. Also in the last month or so we appear to have stopped improving.

A more up to date look at things comes from the Inland Revenue tax database.

Early estimates for January 2021 indicate that there were 28.3 million payrolled employees, a fall of 2.5% compared with the same period of the previous year and a decline of 730,000 people over the 12-month period. Compared with the previous month, the number of payrolled employees increased by 0.3% in January 2021 – equivalent to 83,000 people.

As you can see this shows a still substantial decline but a more hopeful current picture as employment picks up. Also we need to note that it is “payrolled employment” so as so often the self-employed are left out.

Comment

I will come to the problems with the numbers in a moment but as far as we can tell the most up to date numbers suggest the economy has continued to recover. But sadly we still have a way to go which is somewhere between 2.5% ( payrolled employment) and 7% (hours worked) .Added to that is something we looked at in Friday from the public finances data.

self-assessed Income Tax receipts this month were £16.8 billion, £1.4 billion higher than in January last year,

That series also has its distortions so please just take it as a broad brush.

If I now return to today’s issue of average earnings. Let me introduce newer readers to my rule which is to accept official figures until they become ridiculous. Well the average earnings figures have gone beyond that, sadly. They are so bad that it is my opinion that the series should be suspended on the grounds that they are in fact actively misleading. Indeed we are in a period where it is performing badly partly because of changes recommended by some familiar people as in the Turnbull-King review was indeed Baron King of Lothbury as he is now known and this was reviewed by Dr.Martin Weale in 2009. Because you see

The previous lead measure of earnings, the AEI did not reflect changes in the composition of the workforce in this way.

Can we sing along with Moloko?

Bring it back
Sing it back
Bring it back
Sing it back to me

 

 

 

UK unemployment rises above 7% and towards 10%

There are many different ways of gaining an insight into an economy and the labour market is one of the most significant. The credit crunch posed a challenge for earnings numbers in particular and we have seen that the pandemic and in particular the official response of the government via the furlough scheme has heavily affected the unemployment numbers. This is in many ways a good thing as it has helped prevent an unemployment surge but at the cost of making the number below useless as much of a guide to anything. However nobody seems to have told the BBC economics editor Faisal Islam.

While the main rate of unemployment has reached 5% for the first time in nearly five years, and this morning’s numbers saw the largest increase in the numbers unemployed since the financial crisis, the chancellor must now be tempted to extend the furlough scheme to co-ordinate with the rollout of the post-vaccination reopening of the economy.

He is in such a rush to make his point he forgets something which does appear later.

Though a significant rise over the past few pandemic-afflicted months, unemployment at 5% is still low by international standards and is being kept in check by the government’s job retention furlough scheme.

If we now switch to the actual numbers we are told this.

The UK unemployment rate, in the three months to November 2020, was estimated at 5.0%, 1.2 percentage points higher than a year earlier and 0.6 percentage points higher than the previous quarter.

But we see if we go through the numbers that some 1.6 million or so are being kept in employment by the furlough scheme.

Prior to the coronavirus (COVID-19) pandemic there were on average 2 to 2.5 million people temporarily away from work. 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 4.1 million people in November 2020.

This is a very broad brush measure but it compares to this.

For September to November 2020, an estimated 1.72 million people were unemployed, up 418,000 on the same period the previous year and up 202,000 on the quarter.

So nearly double and if I was being harsh I would add in 400,000 from the number below too.

There were also around 278,000 people away from work because of the pandemic and receiving no pay in November 2020; this has fallen from around 658,000 in April 2020.

That is how the unemployment rate could be as high as 10%.

Hours Worked

This gives a much better guide to what is going on and let me open with the good part.

Between June to August 2020 and September to November 2020, total actual weekly hours worked in the UK saw an increase of 89.0 million, or 10.0%, to 979.9 million hours.

Average actual weekly hours worked saw an increase of 2.8 hours on the quarter to 30.1 hours.

We are not given a direct comparison so let me help out. At the start of the year we were at just over 1,052 million hours so there has been a fall of around 7%. This confirms our view about the unreliability of the unemployment rate.

Employment

Here the situation is a little simpler.

Since February 2020, the number of payroll employees has fallen by 828,000; however, the larger falls were seen at the start of the coronavirus (COVID-19) pandemic.

The next number provides some perspective on the overall situation.

The UK employment rate, in the three months to November 2020, was estimated at 75.2%, 1.1 percentage points lower than a year earlier and 0.4 percentage points lower than the previous quarter.

If we get a little more up to date and look at December we see that in fact it is pretty similar to November.

Early estimates for December 2020 indicate that the number of payrolled employees fell by 2.7% compared with December 2019, which is a fall of 793,000 employees; since February 2020, 828,000 fewer people were in payrolled employment.

If we look back we see that previously the UK was creating jobs and so we have come to the end for now at least to something which was a ray of sunshine in difficult times.

Estimates for September to November 2020 show 32.50 million people aged 16 years and over in employment, 398,000 fewer than a year earlier. This was the largest annual decrease since December 2009 to February 2010. Employment decreased by 88,000 on the quarter.

Care is needed because the furlough scheme will impact here too.Also the obvious changes in the economy are muddying the waters. According to our Deputy National Statistician Jonathan Athow a couple of things have changed.

Some people report being in work, but away from work for Covid reasons and not being paid. They count as employment for LFS but don’t show up on payrolls. There are about 250k of them in recent months……….the employee-s/e split in LFS seems to be a little odd at the moment, and we think this is a change in how people report themselves. So likely 500k fall overstates things at moment, and shouldn’t be added to 800k payrolls.

This was in response to calculations which showed that in fact the number of jobs lost was 1.3 million. So in reality it is a bit more than the 800,000 or so officially reported but we do not know how much.

Average Earnings

This is from Kate Andrews who is economics correspondent of the Spectator.

Earnings growth is back to pre-pandemic levels. But it’s a selective recovery: ‘impacted upwards’ says the ONS ‘by a fall in the number and proportion of lower-paid jobs compared with before the coronavirus pandemic’ i.e. people in low-paid work have lost their jobs.

Is earnings growth back to pre-pandemic levels no?! In fact if you believe them they are above such levels.

Growth in average total pay (including bonuses) among employees for the three months September to November 2020 increased to 3.6%, and growth in regular pay (excluding bonuses) also increased to 3.6%.

Feel free to have a good laugh at that. The explanation is something of a generic as the same themes are in play in the United States for example.

Current average pay growth rates are being impacted upwards by a fall in the number and proportion of lower-paid jobs compared with before the coronavirus (Covid-19) pandemic; it is estimated that underlying wage growth – if the effect of this change in profile of jobs is removed – is likely to be under 2%.

Actually I do not believe that either as we see a series that is collapsing under the strain of the pandemic. We can look at the different sectors via the numbers below.

 The finance and business services sector saw the highest estimated growth in total pay, at 5.4%. Negative growth was seen in the construction sector, estimated at negative 1.1%. The wholesaling, retailing, hotels and restaurants sector, estimated at 3.1%, and manufacturing, estimated at 0.8%, were positive.

Perhaps there has been a good bonus season but does a 5.4% growth in finance pay pass the sense check? I do not think so. Frankly reporting 3.1% pay growth in the hospitality sector is a joke. Is anyone still there for a start? Looking at the numbers there have been some bigger bonus payments reported in the finance sector which may be skewing the numbers. As to the hospitality numbers I can only suspect that the wholesale sector includes things like Amazon which have been booming. It is a low pay sector at £376 per week in November so even a minor shift can skew the numbers.

I am leaving out real pay as frankly they are beyond a joke.

Comment

We have seen over the past 24 hours how a loose understanding of statistics can lead to trouble as 8% of the people being over 65 in the AstraZeneca covid vaccine sample got reported as an 8% efficacy rate. I am being polite saying loose understanding as darker forces look to be at play. This in another form is what is happening with the reporting of a 5% unemployment rate which is clearly wrong but gets reported anyway. It looks to be somewhere north of 7% and up to around 10% but we cannot say with any precision.

The situation is even worse when we shift to earnings. Regular readers will be aware that I have been a frequent critic of the way the numbers omit important sectors such as the self-employed and in fact any business with less than ten employees. But right now the structure of it ( approved back in the day by a familiar figure Dr.Martin Weale) means the numbers are worse than useless in my opinion.

In fact things are so bad that a number criticised in 1983 by Yes Prime Minister “nobody believes the unemployment numbers” is in fact more on the mark. I am referring here to the claimant count.

The Claimant Count increased slightly in December 2020, to 2.6 million; this includes both those working with low income or hours and those who are not working.

It would give us an unemployment rate of the order of 7.6%.

As to wages well the actual numbers seem to be showing a fall.

This is particularly important to consider at present because both of the two main sources of information about number of employee paid through payroll (HM Revenue and Custom’s Pay As You Earn Real Time Information, and Office for National Statistics’ Monthly Wages and Salaries Survey) identify a year-on-year fall of close to 3%.

The Bank of England has an inflation problem

In these times we have seen the technocrats grab economic power in what is something of a challenged to democracy. Often their words are more important than that of elected politicians. Also they like  to travel in a pack and are not keen on venturing outside of it. So we can learn from the latest outpourings from Bank of England Chief Economist Andy Haldane who has given 2 interviews over the past 24 hours. Or rather they have been published in that time frame.

The interview with the Guardian focused on unemployment.

Haldane said unemployment was a scourge that could leave long-lasting scars. “I saw it up close and personal in the 1980s but it is still very much visible now,” he added.

“If we are not careful those unemployment problems can become sticky. What we found from the 1980s experience is that they can become generational. It is passed down the generations and you have whole families without work.”

It is of course important to learn from the past but there is also the danger of being like a first world war general and fighting the previous war rather than the new one. Andy Haldane seems to think that things have gone as well as they can.

“Policy has been tremendously important. A huge amount of insurance has been provided by the government and the Bank of England – supporting people’s jobs, supporting incomes, supporting businesses and supporting borrowing costs. Without that insurance the outcome for jobs, incomes and the economy would have been massively, massively worse.”

He suggests a much worse path if we had not acted as we have.

Haldane said without action the 25% collapse of the economy in the spring would have pushed up the unemployment rate by 10 percentage points. “Instead of 2-3 million unemployed we would be talking about 4-5 million,” he added.

Whereas his opinion on where we are is relatively benign.

Haldane said he estimated that the UK’s unemployment rate had picked up from less than 4% to more than 6% since the arrival of the pandemic but job losses had been less severe than the Bank’s early estimates.

This time around I think we can cut them some slack on the issue of another set of forecasting errors as this year has been quite something. However there is an issue here where the Chief Economist is wither being deliberately misleading or ignorant and it relates to the way that the unemployment rate is concealing a lot of hidden unemployment. He has started the journey by quoting an unemployment rate if 6%+ when it is officially 4.9% but as you can see below it falls quite a distance short of my estimate. From the 15th of this month.

That is the impact of the furlough scheme in the main and if we quantify that we see that around 1.5 million people are in a type of hidden unemployment so putting them back in leaves us with 3.2 million unemployed or a near doubling of the numbers. On that road the unemployment rate looks to be a bit over 9%.

Perhaps our Andy is somewhat trapped by his previous optimism.

Haldane has been the most upbeat of the nine members of the Bank’s monetary policy committee in recent months.

Indeed and if we go back to the 30th of September we were told this.

Now is not the time for the economics of Chicken Licken.

For those unaware there was a description of this.

The fictional fowl who, having been hit on the head by an acorn, declared the sky was falling in.

Inflation

This morning in something of a pivot our Andy has been interviewed by Bloomberg and the main subject is inflation.

The Bank of England must have a “laser focus” on keeping inflation expectations in check after the pandemic, Chief Economist Andy Haldane said, highlighting the tricky balance the nation faces in managing its massive debt burden.

There is a lot going on in that sentence but let us start with the contradiction between the opening statement and this.

While the BOE is willing to let price growth temporarily overshoot its 2% target as the economy emerges from the current crisis, there can be no question of letting that sentiment become entrenched, he said.

We have been here before when posy the credit crunch the Bank of England let inflation rise above an annual rate of 5% in late 2011 and in fact it took another couple of years or so for it to return to target. This caused damage to real wage growth which is yet to be repaired. Thus the word “temporary” has its own section in my financial lexicon for these times.

It would appear that people are not falling for this line this time around.

Whether policy can stay that loose depends on how businesses and consumers respond when the crisis ends. A gauge by Citigroup Inc. and YouGov last week showed U.K. household inflation expectations for the next 12 months jumping.

Indeed the latest Bank of England survey suggests the same.

Question 2c: Asked about expectations of inflation in the longer term, say in five years’ time, respondents gave a median answer of 2.9%, compared to 2.8% in August.

Indeed if we look at that survey there is quite a critique of inflation measurement in the UK.

Question 1: Asked to give the current rate of inflation, respondents gave a median answer of 2.5%, compared to 2.6% in August.

Yet the so-called lead indicator from the Office for National Statistics tells us this.

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month inflation rate was 0.6% in November 2020, down from 0.9% in October 2020.

There are a load of issues headed by its inclusion of rents which do not exist ( Imputed Rents) and the fact that they are based on numbers  from last tear rather than November. But a new front has opened on the issue of puppies. Let me hand you over to Belfast Live as I should mention Northern Ireland more.

The cost of all dogs appears to have risen sharply, especially more popular breeds such as cavapoos and cockapoos.

A recent survey by Pets4Homes shows cocker spaniels have seen a price increase of more than 200% this year.

Jack Russell terriers that once sold for £350 are now on the market for £2,000.

A cavapoo which would have cost £1,000 last year, is now expected to cost around £3,000.

I have to confess I do not know what a Cavapoo is but in Battersea mini-daschunds are all the rage which prices now at £3500. Meanwhile the section Purchase of Pets in the inflation series showed an annual inflation rate of 2.7% which is something from another universe.

There is an element of self-selection in these numbers as you have to be able to pay such amounts but of you look at the Jack Russell prices you did not have to in a clear example of inflation letting rip. The issue of it being missed is one I have raised about what you might call pandemic products such as face masks and sanitiser but the official view is that they are too minor to produce any real change.

 

Comment

So our “loose cannon on the decks” has spoken and it seems he is as detached from reality as ever. For example the issues with inflation are two-fold. The first is that the Bank of England has given the economy quite a monetary push with the annual rate of broad money ( M4) growth at 13.1%. So there is an element of a “laser focus” on something it has created. Also there are issues out there.

China’s exchange moved to tighten restrictions on the trading of iron ore futures, which hit a new record high on Monday and more than double from April levels. …….Iron ore futures price has soared in recent months, with the the most traded contract on the Dalian Commodity Exchange surging nearly 10 per cent on Monday to 1,144.5 yuan ($175) ( Yuan Talks)

Dies anybody out there believe the Bank of England will respond to an inflation rise? It was only yesterday we were noting that it has switched UK debt risk into Bank Rate.

Savers have learnt about the word temporary from the Bank of England too as this is from September 2010.

“It’s very much swings and roundabouts. At the current juncture, savers might be suffering as a result of bank rate being at low levels, but there will be times in the future — as there have been times in the past — when they will be doing very well.” ( Sir Charles Bean)

Next there is the issue of how inflation is measured as it seems increasingly to be like th science fiction series The Outer Limits.

 

 

The UK has an unemployment rate of 9% and no real wage growth

Today reminds me of the article I wrote on the second of April where I was worried about the spectre of mass unemployment. It turns out that I was right on two counts. We have plunged into a type of economic depression but as I warned then we have had a fair bit of trouble with the way it is measured.

However the numbers will need some interpreting because it looks as though those who are “furloughed” will continue to be counted as in employment. Personally I think it would be better if a new category was created.

Sadly the International Labor Organisation has continued with a standard that has turned out to be about as useful as a chocolate teapot.Let me explain with reference to the latest UK figures from this morning.

The UK unemployment rate, in the three months to October 2020, was estimated at 4.9%, 1.2 percentage points higher than a year earlier and 0.7 percentage points higher than the previous quarter……….Estimates for August to October 2020 show an estimated 1.69 million people were unemployed, up 411,000 on the same period the previous year and up 241,000 on the quarter.

In the circumstances of a 7.9% decline in GDP or economic activity in the pandemic period these would be really good numbers but they are sadly too good to be true for the reason below.

Prior to the coronavirus (COVID-19) pandemic there was on average 2 to 2.5 million people temporarily away from work. 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 3.7 million people in October 2020.

That is the impact of the furlough scheme in the main and if we quantify that we see that around 1.5 million people are in a type of hidden unemployment so putting them back in leaves us with 3.2 million unemployed or a near doubling of the numbers. On that road the unemployment rate looks to be a bit over 9%.

There is an irony in today’s numbers because in the television series Yes Prime Minister Jim Hacker tells us that nobody believes the unemployment numbers. He was referring to a forerunner ( this was 1983) of what we now call the claimant count which seems to be performing better than the official unemployment numbers.

The Claimant Count increased slightly in November 2020 to 2.7 million. This represents a monthly increase of 2.5% and an increase of 114.8%, or 1.4 million, since March 2020.

Oh and this exchange in another episode may raise a wry smile.

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.

Hours Worked

Fortunately there is another measure which is giving us a lot better guide to the state of play in the UK labour market. Let us start with the good part.

Between May to July 2020 and August to October 2020, total actual weekly hours worked in the UK saw a record increase of 104.9 million, or 12.3%, to 960.0 million hours.

Average actual weekly hours worked saw a record increase of 3.3 hours on the quarter to 29.5 hours.

As you can see there has been quite an improvement and we may have some form of a V-Shaped recovery eventually.

In terms of theoretical economics this is called labour hoarding where we have responded by having fewer hours worked rather than people being made explicitly unemployed and losing their job. If we were to look back a decade or more this was in fact considered a good outcome as it was considered that the German system which used this was better than ours in the UK which used it less.

Returning to the numbers in spite of the sort of half V we are still in a situation where id we compare the peak of 1,052,196 weekly hours to the most recent number of 960,020 we see a fall which is still of the order of 8.8%. Another way of looking at this is that we have gone back to the summer of 2013 or are slightly better than what we were pre credit crunch so in 2008.

Redundancies

These provide some help in terms of direction of travel.

The number of people reporting redundancy in the three months prior to interview increased in August to October 2020 by a record 251,000 on the year, and a record 217,000 on the quarter, to a record high of 370,000

However there is a catch in that the total numbers reported will have been reduced by the furlough scheme ( a good thing overall). But in terms of these numbers there will have been a boost from the expected end of the furlough scheme which was then extended.

Wages

I think before we even look at these numbers we need to put up a proceed with caution sign or if we were the Starship Enterprise we would be on yellow alert.

Growth in average total pay (including bonuses) among employees for the three months August to October 2020 increased to 2.7%, and growth in regular pay (excluding bonuses) also increased, to 2.8%.

That does not seem very likely and in fact things get even less likely as we switch to real wages.

Growth in both total pay and regular pay was higher than inflation; in real terms, average pay was 1.9% (total pay) and 2.1% (regular pay) higher than a year ago.

Sadly some will take this at face value and think that we have got right back ti where we started from and put Maxine Nightingale on Spotify.

The rate of total and regular pay growth had stood at 2.9% in December 2019 to February 2020 immediately prior to any impact from the coronavirus (COVID-19) pandemic was seen; it then slowed sharply in April to June 2020 to negative 1.3% for total pay and negative 0.1% for regular pay before some increase between July and October.

The catch is something that has been a problem before in the credit crunch era and I have noted in the US data.

A notable proportion of the growth in average pay is because of a fall in the number and proportion of lower-paid employee jobs; other factors such as a fall in employees entering the labour market have also inflated average pay growth.

Okay so how much? Let us start with compositional changes

 

It therefore appears that the net impact of recent job losses, when measured in terms of type of job, is to increase the estimate of average pay by approximately 1%.

Then there is this.

This considers tenure of employees who fill the stock of jobs and suggests that a fall in new entrants to the labour market (who are lower paid than average) has contributed to an increase in average pay, with magnitude of approximately 1%.

Shifts within industries account for 0.2%. So we have a total of 2.2% but there may be double counting here. But as a principle we have just removed the real wage growth which is a good thing as the idea that we actually have real wage growth is pretty ridiculous. It is even before we get to the issue of the woeful imputed rent driven inflation number that has been accepted by our statisticians under pressure from HM Treasury.

Comment

We find that the labour market figures have quite a few traps for the unwary. The points below are generic ones although the specific numbers refer to the UK. If we start with the quality or price numbers we see that such analysis wipes out any real wage growth and perhaps all wage growth. That seems much more realistic as it fits better with what the Bank of England Agents reported.

Given the uncertain outlook, many companies reported freezing pay, and a large proportion of contacts said they planned to delay or cancel pay settlements this year. Companies in a number of sectors reported introducing temporary pay cuts, though these were mainly at management level.

Switching back to the quantity numbers we see that a reported unemployment rate of 4.9% becomes more like 9% once we allow for the furlough scheme. So it is hours worked which give us a true guide highlighted by the graph above.Also have you noticed how Zero Hours Contracts have shifted off the agenda? Hours worked have got much better but sadly due to the new restrictions are likely to get worse again in November and December. The latter is rather confused for Londoners like me as we have just been restricted more but next week the Christmas loosening starts.

In vaccines we trust…..