Today brings us to the latest UK labour market data but before we get there we see two clear features of these troubled times. One is in fact a hardy perennial referred to in Yes Prime Minister by Jim Hacker over thirty years ago although he was unable to arrange one. From Kensington Palace..
Their Royal Highnesses The Duke and Duchess of Sussex are very pleased to announce that The Duchess of Sussex is expecting a baby in the Spring of 2019.
Who says the UK has no plans for Brexit when a Royal Baby is in the process of being deployed?
Next comes some intriguing news from Scottish Power reported by the BBC like this.
Scottish Power to use 100% wind power after Drax sale
My first thought was to wonder what happens when the wind does not blow? Or only weakly as for example if we look at UK electricity production this morning where according to Gridwatch it is 5 GW out of a maximum of around 12.5 GW? There is little extra on this to be found in the detail.
Scottish Power plans to invest £5.2bn over four years to more than double its renewables capacity.
Chief executive Keith Anderson said it was a “pivotal shift” for the firm.
“We are leaving carbon generation behind for a renewable future powered by cheaper green energy. We have closed coal, sold gas and built enough wind to power 1.2 million homes,” he said.
As you can see the issue of when the wind does not blow gets entirely ignored in the hype. Indeed one part of its past production which could help to some extent by being used when the wind does nor blow which is hydro power has just been sold! As to the claims I see that this provides cheaper electricity that is rather Orwellian as we know that the green agenda is driving prices higher but tries to hide it. Still the good news for Scottish Power customers is that if all the statements are true then there will be no more price rises because energy costs are now pretty much fixed.
As you might expect raising such thoughts on social media leads to some flack. According to @Scottishfutball I am a stupid man although that tweet has now disappeared. Here is a longer answer to show the other side of the coin from Is anybody there on Twitter.
When the wind doesn’t blow they have hydroelectric power, wave power, solar, biomass, pumped hydro storage. Add in micro grids, battery storage and deferred demand and it’s very achievable.
The hydro power they just sold? And what’s “deferred demand”?
Here the news was a little better.
Latest estimates show that average weekly earnings for employees in Great Britain in nominal terms (that is, not adjusted for price inflation) increased by 3.1% excluding bonuses, and by 2.7% including bonuses, compared with a year earlier.
So we see that on this three-monthly measure total pay has risen at a 0.1% faster rate and basic pay by 0.2%. The balancing item here is bonuses which fell by 1.3% in August on a year before.
Let us take a look at this as the Bank of England wants us to. Here is its Chief Economist Andy Haldane from last week.
A year on, I think there is more compelling evidence of a new dawn breaking for pay growth, albeit with the
light filtering through only slowly……….Looking beneath the headline figures, evidence of an up-tick in pay is clearer still. Private sector pay growth (again excluding bonuses) has been grinding through the gears; it recently hit the psychologically-important 3% barrier. Private sector wage settlements so far this year are running at 2.8% and in some sectors, such as construction and IT, are running well in excess of 3%.
Someone needs to tell Andy that if an average is 3% some will be above and some will be below. Also is the growth 3% or 2.8%? But let us ignore those and Andy’s lack of enthusiasm for bonuses, no doubt influenced by his own personal experience. On this measure we see that private-sector pay growth is now 3.1% so another nudge higher and with July and August both registering 3.3% we could see another rise next time. The trouble is that whilst this is welcome we are back at the old central banking game of cherry picking to data to produce an answer you arrived at before you looked at it. Also one cannot avoid noting that the theory Andy so loves – and has led him regularly up the garden path over the past 5 years or so – would predict this wage growth to be more like 5%. Or to put it another way the view shown below seems not a little desperate and the emphasis is mine.
This evidence suggests the pulse of the Phillips curve has quickened as the labour market has tightened.
Unlike over much of the past decade, estimated wage equations are now broadly tracking pay.
So the new “improved” models are just the old ones in a new suit?
If we switch to total pay we see that over the course of 2018 it is much harder to pick a clear pattern. Whilst we are a little higher than a year ago as 2.7% replaces 2.4% it is also true that we opened the year at 2.8%. Next month should be better as the May 2% reading drops out but it is a crawl at best. If we switch to real wages we are told this.
Latest estimates show that average weekly earnings for employees in Great Britain in real terms (that is, adjusted for price inflation) increased by 0.7% excluding bonuses, and by 0.4% including bonuses, compared with a year earlier.
Here comes my regular reminder that even such small gains rely on using an inflation measure that is not fit for purpose. This is because the CPIH measure relies on imputed rents which are a figment of statistical imagination and which, just by chance of course, invariably lower the reading. We will be updated on the inflation numbers tomorrow but it was 2.4% compared to the 2.7% of its predecessor ( CPI ) and the 3.5% of the one before that ( RPI) as we try to detect a trend. Even using it shows that the last decade has been a lost one in real wage terms.
For August 2018, average total pay (including bonuses), before tax and other deductions from pay, for employees in Great Britain was: £523 per week in nominal terms, up from £508 per week for a year earlier……..£492 per week in constant 2015 prices, up from £489 per week for a year earlier, but £30 lower than the pre-downturn peak of £522 per week for February 2008.
As you can see even using the new somewhat deflated inflation number there will be another lost decade for real wages at the current rate of progress.
Today has mostly been a journey of comparing wish-fulfillment with reality, or the use of liberal quantities of hopium. Still perhaps it will be found at a fulfillment center, whatever that is. From CNBC.
Tech giant Amazon is set to install solar panels at its fulfillment centers across the U.K. ( H/T @PaulKingsley16 )
If we switch back to the Bank of England which of course is also full of rhetoric on the climate change front, as after all someone has to offset all the globetrotting of Governor Carney, we return to wages again. Actually it has reined in its views quite a bit.
The rise in wages projected by the Bank is, to coin a phrase, limited and gradual. Private sector pay is
assumed to rise from 3% currently to around 3 ¾% three years hence, or around 25 basis points per year.
The catch is the implied assumption that we will always grow because any slow down would then knock real wages further. But even on that view once we allow for likely inflation it looks as if there will be only a little progress at best.