UK employment improves and so does underemployment

As we look at the UK labour market today let us start with something which in one way is good news and in another poses questions. From Reuters last week.

Manchester United winger Jesse Lingard has signed a new contract that will keep him at Old Trafford until 2021, the Premier League club said in a statement on Thursday.

Lingard, who will earn up to 100,000 pounds a week according to British media reports, has an option to extend the deal by a further year.

Firstly congratulations to Jesse and for once it is nice to see an English player benefit from the largesse of the Premier League these days. There is invariably hype in the exact numbers but he seems to have approximately trebled his wages which will do there bit for the average wages series in the future. However those who watched an outstanding display by Juventus last night in the Champions League as they put Barcelona to the sword have been mulling the concept of relativity. From @Football_Tweet

– Paulo Dybala earns €3M a season at Juventus. – Jesse Lingard earns €6M a season at Man Utd.

we return to a familiar question which is how much of the wages growth is in effect a type of inflation?

The impact of Robots

If we look ahead on a more general level then we can expect to see not only more robots in our economy but more advanced ones appear. Not quite as advanced as the ones in the Foundation saga of Isaac Asimov that I am currently reading again but considerable advances are being made. According to Bloomberg such improvements are likely to have an impact on labour markets and wages especially.

Robots have long been maligned for job-snatching. Now you can add depressing wages and promoting inequality to your list of automation-related grievances.

Industrial robots cut into employment and pay for workers, based on an new analysis of local data stretching from 1990 and 2007. The change had the biggest impact on the lower half of the wage distribution, so it probably worsened America’s wage gap.

The exact results are as follows.

One additional robot per thousand workers reduces the employment-to-population ratio by 0.18 percentage points to 0.34 percentage points and slashes wages by 0.25 percent to 0.5 percent, based on their analysis.

Food for thought as we look forwards in years and decades and of course ground which many of the best science fiction writing has warned about.

Today’s data

The quantity data remains pretty strong as you can see.

There were 31.84 million people in work, 39,000 more than for September to November 2016 and 312,000 more than for a year earlier.

There was an additional kicker to this as we got a glimpse into a potentially improving situation regarding underemployment as well.

with an increase in full-time employment (positive 146,000) partly offset by a fall in part-time employment (negative 107,000)………….strong demand for labour is translating into a shift from part-time to full-time employment, and an increase in the average hours worked per week by both full time and part-time employees.

Here is the analysis of hours worked.

Average hours worked per week increased from 32.0 to 32.4 in the 3 months to February 2017, the highest since July to September 2002, largely due to more hours being worked over the Christmas and New Year period compared with recent years.

Fewer part-time workers are looking for full-time work.

Data released today (12 April 2017) show that this measure continued to contract with the proportion falling to 12.6%, down from 14.2% a year ago (and down from a peak of 18.4% in 2013). This proportion is now at its lowest since March to May 2009, but still well above its pre-crisis average of 8.3%.

So it looks as though the situation regarding underemployment has improved as well although the data is only partial and let us finish this section with the unemployment numbers.

There were 1.56 million unemployed people (people not in work but seeking and available to work), 45,000 fewer than for September to November 2016 and 141,000 fewer than for a year earlier.

What about wages?

These were the same as last month in terms of growth.

Between the three months to February 2016 and the three months to February 2017, in nominal terms, total pay increased by 2.3%, the same as between the three months to January 2016 and the three months to January 2017.

Actually there was a rise in the month of February by 2.9% on the year before so maybe a hopeful hint of a pick-up! We will find out as we go through the bonus months of March and April. One thing we do know is that both Sky News and the Financial Times ( “UK wages have grown at their weakest pace in seven months,”) have not checked this.

The official numbers on real wages are below.

adjusted for inflation, average weekly earnings grew by 0.2% including bonuses and by 0.1% excluding bonuses, over the year, the slowest rate of growth since 2014.

So we have something of a discontinuity as we had some real wage growth in February it would appear. Let us cross our fingers that it continues but sadly it seems unlikely ( the comparison is flattered by bonuses falling last year). Of course even if we use the figures for February alone then real wage growth was negative if we compare it to the Retail Price Index.

Also the exclusion of the self-employed from the wages data gets ever more shameful.

self-employed people increased by 114,000 to 4.78 million (15.0% of all people in work).

Can we increase tax on income from wages?

After the debacle of the U-Turn on higher National Insurance contributions from the self-employed there have been arguments that the UK is unable to ever raise more taxes from income. It was interesting therefore to see some international comparisons from the OECD today.

The average single worker in Belgium faced a tax wedge of 54.0% in 2016 compared with the OECD average of 36.0%…..Belgium had the 4th highest tax wedge in the OECD for an average married worker with two children at 38.6% in 2016, which compares with the OECD average of 26.6%.

Not the best place to be single and childless it would appear! But now the UK.

The average single worker in the United Kingdom faced a tax wedge of 30.8% in 2016……..The United Kingdom had the 22nd lowest tax wedge in the OECD for an average married worker with two children at 25.8% in 2016,

So in theory we could if we wished to reach the peak that is Belgium. The Anglosphere ( US, Australia and Canada) if I can put it like that has similar numbers to the UK although the Kiwis stand out at only 17.9% for a single person. The lowest is Chile at 7%.

Interestingly with its debt and deficit problems income in Japan is slightly more taxed than here.

Comment

I would like to take a step back and consider the last couple of years. Remember the number of economists and media analysts who warned about what they called “deflation” and sometimes they shouted it so loud it was “DEFLATION”? Well it morphed into this.

By late-2014, an increase in nominal wage growth and low CPIH inflation, led to average real earnings increasing by 1.7% in the 18 months to mid-2016. ( Office for National Statistics).

This of course boosted the economy mostly via the retail sales boom but also in other ways as I pointed out on the 29th of January 2015.

However if we look at the retail-sectors in the UK,Spain and Ireland we see that price falls are so far being accompanied by volume gains and as it happens by strong volume gains. This could not contradict conventional economic theory much more clearly. If the history of the credit crunch is any guide many will try to ignore reality and instead cling to their prized and pet theories but I prefer reality ever time.

If there was a musical theme to the deflation paranoia then it was “clowns to the left of me, jokers to the right” from Stealers Wheel. Please do not misunderstand me I am talking about the so-called experts here not those influenced by them. Sadly we seem to be heading into a period where something they wanted ( higher inflation) will slow the economy down. I wonder how the inflationistas will spin that?

 

 

 

 

 

UK real wages fell in January ending over 2 years of growth

Today sees us receive the latest UK labour market data with the main emphasis being on wages as we mull how they will compare with inflation as 2017 progresses. The phase where low inflation boosted real wages is over for now at least as we cross our fingers and hope it will not rise too far. On that front we have had some better news from the recent dip in the price of crude oil but as a ying to that particular yang there has also been this.

In case you missed it, iron ore in China is up 10% since Monday. Cheers ( @DavidInglesTV )

On the usual pattern we would know the latest inflation data but that is not due until next week whilst our statisticians perhaps drink gin, play jigsaws whilst wearing a base layer and a cycle helmet.

Public-Sector Pay

This is something which has perhaps been too much in the background. For many who work in the public-sector wages have been under an austerity style squeeze for some time now. The area has also got more complex as many such jobs have been outsourced to private companies as for example many of the staff in Battersea Park work for a company called Enable now rather than Wandsworth Council. In terms of scale here are the numbers involved.

There were 5.44 million people employed in the public sector for December 2016. This was little changed compared with September 2016 and with a year earlier. Public sector employment has been generally falling since December 2009.

Although the picture gets ever more complex.

The Institute of Fiscal Studies has looked into the wages trend and point out that it is more complex than it may initially appear.

Public sector pay has been squeezed since public spending cuts began to take effect from 2011, and it looks set to be squeezed even further up to 2020. However, this comes on the back of an increase in public sector wages relative to those in the private sector during the Great Recession.

They think that this is set to continue for the rest of this decade.

On the basis of current forecasts and policy, we expect public sector pay to fall by 5 percentage points relative to private sector pay between 2015 and 2020. This would take the raw wage gap to its lowest level for at least 20 years.

However the starting point may not be what you would have expected.

In 2015–16, average hourly wages were about 14% higher in the public sector than in the private sector, according to the Labour Force Survey. After accounting for differences in education, age and experience, this gap falls to about 4%.

This is a complex area as we mull the usefulness of some type of education. For example by interest (athletics) I know people who specialise in the physiotherapy area where attainment is higher in that graduates are recruited but some for example have never manipulated someone’s back. Of course there is also the issue of pensions.

Reforms to public sector pensions have reduced the value of the pension public sector workers can expect to enjoy in retirement, though this is still probably more than private sector workers can expect

I do not know what the IFS has been smoking here as public sector pensions look ever more valuable in relative if not absolute terms to me.

Good News

This as so often these days comes from the quantity numbers in the labour market report.

There were 31.85 million people in work, 92,000 more than for August to October 2016 and 315,000 more than for a year earlier……..There were 23.34 million people working full-time, 305,000 more than for a year earlier. There were 8.52 million people working part-time, 10,000 more than for a year earlier.

The extra number of people in work helped reduce unemployment as well, oh and in case you assumed it was an obvious link it is not always that simple due to a category for inactivity.

There were 1.58 million unemployed people (people not in work but seeking and available to work), 31,000 fewer than for August to October 2016 and 106,000 fewer than for a year earlier………….The unemployment rate was 4.7%, down from 5.1% for a year earlier. It has not been lower since June to August 1975.

 Bad News

This was demonstrated by this on the wages front.

Latest estimates show that average weekly earnings for employees in Great Britain in nominal terms (that is, not adjusted for price inflation) increased by 2.2% including bonuses, and by 2.3% excluding bonuses, compared with a year earlier.

So we see a slowing from the 2.6% reported last time. If we look into the single month detail it is worrying as you see December was 1.9% and January 1.7% giving a clear downwards trend. If we look further we see that those months saw much lower bonus payments than a year before and in fact falls as for example -3.9% and -2.7% was reported respectively. Putting it another way UK average earnings reached £509 in November but were £507 in both December and January.

Ugly News

This comes from the position regarding real wages.

Comparing the 3 months to January 2017 with the same period in 2016, real AWE (total pay) grew by 0.7%, which was 0.7 percentage points smaller than the growth seen in the 3 months to December 2016.

There has been something of a double whammy effect at play here as inflation has risen as we expected but sadly wage growth has dipped as well. So the period since October 2014 when real wages on the official measure began to rise is certainly under pressure and frankly seems set to end soon.

If we look at January alone then real wages were 0.1% lower than a year before as inflation was 1.8% and using the new headline measure ( from next month) they fell by 0.3% on a year before. Using the Retail Price Index or RPI has real wages falling at an annual rate of 0.9% in January.

Comment

There are quite a few things to laud about the better performance of the UK economy over the past few years as employment has risen and unemployment fallen. Although of course we would like to know more ( indeed much more…) about the position relating to underemployment which is one of the factors at play in the situation below.

The number of people employed on “zero-hours contracts” in their main job, according to the LFS, during October to December 2016 was 905,000, representing 2.8% of all people in employment. This latest estimate is 101,000 higher than that for October to December 2015 (804,000 or 2.5% of people in employment).

For a while this was also true of real wages although to be fair the situation here mostly improved due to lower levels of recorded consumer inflation. Sadly if the data for January is any guide that happier period is now over even using the official inflation data.Of course this also omits the ever growing self-employed sector.

City-AM

Here are my views on US interest-rates from today’s City-AM newspaper

 

 

We know so little about the economics of the growing number of UK self-employed

The post credit crunch period in the UK has seen a labour market performance of two halves. The good part has been the way that employment has been strong as illustrated by the latest official Economic Review.

The UK labour market continued to show its strength in the 3 months to April 2016, with the employment rate among those aged 16 to 64 increasing to 74.2%, up from 74.1% in the 3 months to January 2016 and 73.4% over the year.

This is a factor in the unemployment rate fall to mid-2005 levels. However the less good part has been the way that wage growth has broken with past relationships and remained weak. Old employment models ( some of which exist unchanged in Ivory Towers) would predict wage growth of the order of 4-5% if they looked at the employment/unemployment situation. Whereas the reality is of numbers close to 2%. The welcome improvement in real wage growth has in fact mostly come because of lower inflation rather than any acceleration in wage growth.

Employment for older people

There are no doubt some in the older age groups who welcome the availability of work, however some may be less willing.

Female participation over the age of 60 has increased by 21.8% since 2010, almost double that for males, and is likely to be heavily influenced by the increase in the state pension age for females in recent years.

One thing we can be clear about is that “early-retirement” is less frequent now and that this has impacted on the labour force.

The increase in the activity level over the age of 50 represents the largest driver of the growth in the activity level for men and women since 2010,

The self-employed

Tucked away on its website the Office for National Statistics has done some in depth research into self-employment. Let us remind ourselves of the basic theme at play here.

The level of self-employment in the UK increased from 3.8 million in 2008 to 4.6 million in 2015.

However this added to something which seems to have begun from around 2001 as we note like in my analysis of Monday that the credit crunch has often added to pre-existing trends.

While this strong performance is among the defining characteristics of the UK’s economic recovery, the recent rise in self-employment is the extension of a trend started in the early 2000s.

We do learn some other things as well.

Part time self-employment grew by 88% between 2001 and 2015, compared to 25% for the full-time mode. As a result, part-time self-employment accounts for 1.2 percentage points of the 1.6 percentage point increase in the self-employment share of all employment between 2008 and 2015.

There seem to be various factors at play but the research suggests much of this is older people using it as a way of transitioning to unemployment and if asked say they are happy with their lot. Indeed there is a clear group who have had high earning jobs and seem content with their lot. We also get an insight into both which economic sectors they are in and also the geography.

The fraction employed in finance and business services has risen considerably, they are relatively concentrated in the South East and London

We even get a brief glimpse of the wages/earnings situation.

Analysis also suggests that those moving from employee positions to self-employment tend to have somewhat higher pre-transition hourly earnings than workers moving to new employee positions: trends which are more consistent with workers making a positive choice, rather than being forced to be self-employed.

So a hint for some of them at least. For newer readers the reason I highlight this is that the self-employed are excluded from the official wages series data, both the monthly average earnings series and the  annual ASHE survey. This was never a good state of play and it gets worse as the number of self-employed grows.

Today’s Data

In terms of quantity the situation continues to improve.

The employment rate (the proportion of people aged from 16 to 64 who were in work) was 74.4%, the highest since comparable records began in 1971……The unemployment rate was 4.9%, down from 5.6% for a year earlier. The last time it was lower was for July to September 2005.

However the price of labour continues to disappoint as we see that even in what looks like very favourable circumstances ( this is what was previously described as full employment) it does this.

Average weekly earnings for employees in Great Britain in nominal terms (that is, not adjusted for price inflation) increased by 2.3% including bonuses and by 2.2% excluding bonuses compared with a year earlier.

So real wage growth relies on low inflation which is troubling if you expect inflation to rise as I described only yesterday.

Between March to May 2015 and March to May 2016 in real terms (that is, adjusted for consumer price inflation) regular pay for employees in Great Britain increased by 1.8% and total pay increased by 1.9%.

Those who prefer our old inflation measure the Retail Prices index or RPI can knock around 1% off that. Oh and that self-employment issue will not go away.

self-employed people increased by 300,000 to 4.79 million (15.1% of all people in work) ( this is over the past year).

Post Brexit?

The numbers above are before the Brexit referendum but we do get a look from the Agents of the Bank of England about the post referendum economy.

A majority of firms spoken with did not expect a near-term impact from the result on their investment or staff hiring plans. But around a third of contacts thought there would be some negative impact on those plans over the next twelve months.

So for the majority L.I.F.E.G.O.E.S.O.N as Noah and the Whale put it whilst some have fears about activity slip-sliding away. The real question is to whether the latter group feel this temporarily or more permanently.

Comment

The official data tells us a rather hopeful story. Here we have strong employment growth which has pushed the unemployment rate much lower and real wages are growing. The cloud in that silver lining is that wage growth is very low for such circumstances. Also there are some more pages you can tear out of your economics textbooks such as the ones covering “full employment” and NAIRU ( Non accelerating inflation rate of unemployment).

Meanwhile if we dig deeper we see signs that the official picture is too rosy. For example whilst I welcome the extra research into the self-employment sector we need to know much more about what they earn and where it stands on the choice/compulsion spectrum. Also there is the issue of underemployment which our official monthly data misses out. According to the TUC it exists.

There were 2.3 million people underemployed in early 2008, however underemployment rose rapidly following the recession and reached 3.4 million in early 2014. It has fallen slowly in the last year to reach just under 3.3 million in early 2015 – but this is still over 900,000 higher than it was before the recession.

Hopefully it has improved over the last year and there is an official update suggesting it fell to 8.9% in the first quarter of this year. But it is apparently outweighed by overemployment of 10.5%!

Meanwhile at the stroke of a pen or indeed movement of a computer mouse reported reality can get better. From the Institute for Fiscal Studies.

Prior to this year, DWP’s official statistics adjusted for inflation using the (now discredited) Retail Prices Index (RPI). Given that RPI inflation is generally higher than CPI inflation, this means that trends in living standards now look more favourable than did previous versions of the government’s statistics.

Time for Freddie Mercury and his band mates.

It’s a kind of magic,
It’s a kind of magic,
A kind of magic,

UK employment hits a record high but wages are weaker and unemployment higher in December

Today sees the latest labour market figures from the UK and let us celebrate what has been a good news story which is the rise in employment. The February Economic Review puts it thus.

The strength of the labour market and the increase in employment of particular has been one of the defining features of the economic recovery.

Indeed the employment rate may well be as good as it has ever been in current lifetimes although changes in the data series make it difficult to be absolutely sure.

The employment rate among those aged 16 to 64 rose from 70.1% in the three months to November 2011, to 73.0% in the three months to November 2014 and to 74.0% in the three months to November 2015: the highest level since at least 1971.

We do not celebrate this enough and it certainly was not expected by the UK establishment because the other side of the coin has been an equally welcome fall in unemployment.

the headline unemployment rate fell from 8.5% to 5.1% over the same period.

How do I know they did not expect it? Well the increasingly hapless Governor of the Bank of England would not have put this at the centrepiece of his original and now many times replaced Forward Guidance.

In particular, the MPC intends not to raise Bank Rate from its current level of 0.5% at least until the Labour Force Survey headline measure of the unemployment rate has fallen to a threshold of 7%,

Something has changed over the past year

There has been a change in the pattern of work which reverses what has so far been a feature of the recovery above. Let me give you the bigger picture first.

Average actual hours of work fell from 33.1 hours per week in the three months to November 1995 to 32.0 hours in the same period in 2007, before falling to 31.5 hours in the three months to November 2009. This trend reversed during the economic recovery, returning average actual weekly hours to its pre-downturn level by 2013.

So pre credit crunch weekly hours worked were gently declining which it kicked lower then it recovered like the other numbers above.  But more recently it has done this.

However, in recent months average hours have weakened slightly again.

Whilst it looks worrying it may be a sign strength and confidence actually.

this movement is consistent with workers taking advantage of stronger real earnings growth or having the confidence to take more holidays relative to the past few years.

Or on the less positive side it could be that employers are responding to the slowdown in economic growth.

One thing that does seems to be certain is that fewer people are working longer hours of the order of 50 or 60 a week. Their numbers were reduced by the Working Time Directive but the fall seems to have started again. Also you may have a wry smile at the statistical issue that some part-timers work more than a full-time week. Oh well!

Zero Hours Contracts

There are people who are recorded as working no hours in the numbers above but the obvious answer is incorrect. These are pretty much those who are either ill or on holiday. For those who want to know the Zero Hours situation it is this.

The estimated average usual weekly hours for people employed on a zero hour contracts has been around 25 hours in recent years.

So overall good news which has continued this morning as shown below.

The employment rate (the proportion of people aged from 16 to 64 who were in work) was 74.1%, the highest since comparable records began in 1971 (and)  205,000 more than for July to September 2015

The rub as Shakespeare would put it is that this sort of analysis does on the subject on underemployment but if far from a full analysis of it. Also we have the issue of the number of employed continuing to rise as the economy slows according to the economic growth (GDP) figures. As the great Yogi Berra reminded us.

It is just like deja vu all over again…

These numbers do not go well together.

the UK economy grew by 0.5% in the final quarter….. total weekly hours worked grew by 1.7% in the latest quarter,

Productivity anyone?

What about wages?

This was a bad news story as above target inflation sent real wages into a tailspin but more recently we have been in a  better phase. However this is fading as the monthly growth rate has been falling since the annualised 3 month average reached 3% in late summer as you can see below.

Average weekly earnings for employees in Great Britain increased by 1.9% including bonuses

The idea of a fading of the numbers was reinforced by the fact that December on its own registered growth of 1.5% which was another slowing and was also below the 2.5% of December 2014.

If we move to real wages we see that the situation was given quite a boost by the decline in inflation. This is one of the clearest areas where I am different from economists both and pandering to the UK establishment as they had a blind spot to the way that the inflationary surge of 2010/11 pushed real wages lower and hope for short memories as the lower inflation now pushes them higher. Why do they do this? Because the official view is that inflation is good for us when it is plainly not.

If we leave that matter to the consciences of those who put personal advancement ahead of reporting reality we see that the good news story is that real wages have been in a much better phase. Indeed incomes have according to the Resolution Foundation finally broken new ground.

We estimate that median income is roughly 3 per cent higher than in 2007-08, standing at around £24,300.

Actually on traditional measures of inequality we are doing better as well. However there is something of a swerve in this as it is pensioner incomes (think triple lock) which have done much of this and the wages position is improved but still.

Typical hourly pay looks unlikely to return to its peak before the end of the decade and there is very little sign that any of the ‘lost growth’ of recent years will ever be restored.

Another failure for the output gap theory that the Bank of England and many economists have clung to through thin and thin during the credit crunch era. Or to put it another way the Resolution Foundation has tweeted this today.

Still a long way to go in the earnings recovery, with average weekly pay £27 short of peak.

 

Comment

If we look at the quantity measures we see that the UK economy has put on an extraordinary performance over the past 3 years or so. Employment has surged and unemployment has fallen substantially and I welcome that unequivocally and pre credit crunch it was what economists were asking for although some have redacted that! The flies in the ointment on these numbers have been worries about underemployment and the issue of zero hours contracts.

The issue of quality or wages has been much more troubled as it took a while to pick-up firstly in response to the employment improvement and then to the later GDP one and has now faded in the latter part of 2015 as the monthly peak of a 3.6% annualised rate in July has been replaced by 1.5% in December. The monthly figures are unreliable but the trend in this period has been clear. We are seeing a better phase for real wages being driven pretty much entirely now by lower inflation. What do our establishment want to do with that? Drive inflation higher! Those who argue for higher inflation are implicitly arguing for lower real wages well for everyone else anyway.

Now after a really good run on all numbers we are facing an issue that the unemployment rate rose to 5.3% in December and total wage growth fell to 1.5% and of course we also know that GDP growth was weaker in the latter part of 2015 as well. So we need to cross our fingers for the early part of 2016 and remember that as long ago as 1983 in Yes Prime Minister Jim Hacker told us that the numbers were manipulated. Time for EMF.

The things, you say
Your purple prose just gives you away
The things, you say
You’re unbelievable

 

 

 

The UK theme of the credit crunch era is employment strong but real wages still lower

Today sees what has become the most important UK data series is issued and if we were in any doubt about that the Bank of England has continually reminded us of that in 2015. Only on Monday Deputy Governor Shafik told us this.

I will wait until I am convinced that wage growth will be sustained at a level consistent with inflation returning to target before voting for an increase in Bank Rate. In this sense, I will proceed with caution.

So we see that wage rises are currently at the front of the queue for providing us with Forward Guidance. However Nemat Shafik appears also to be loading the dice somewhat in terms of the fabled Bank Rate rise.

The recent plateau in wage growth despite the ongoing recovery is one example

Also remember the “never believe anything until it is officially denied” of Jim Hacker fame?

It has never been the intention of the MPC to retain indefinitely the stock of assets purchased as part of QE.

 

How has the labour market done?

If we look at the quantity measure then there has been an excellent performance and one which left naysayers with egg on their face as employment rose and unemployment fell. Of course it left Governor Carney with egg on his face as he used an unemployment rate of 7% as an indicator just as it surged through that to the current 5.2%. Overnight the Financial Times has published new data which suggest that our progress on the quantity measures remains far better than we would have expected considering numbers like Gross Domestic Product.

Companies added jobs at the fastest rate for at least two decades in 2014-15, almost 700,000 across the UK, according to new research.

 

The analysis of job creation and destruction in the private sector in the 12 months to March 2015 by the Enterprise Research Centre found a net 695,500 positions were created. Growing companies hired 2.52m people, while 1.83m jobs were lost.

Good news indeed and something which pre credit crunch we would have been ecstatic about. However the numbers themselves have been challenged in the grounds of underemployment rather than unemployment with the associated issue of zero hours contracts. Also the relationship between employment growth and wages has changed because we have a long way to go to get back to the previous real wage peak. We are left with the question which is how much has changed here as we note the good of employment but wonder if the bad side is that wages have shifted onto a lower path? Let us hope that it is not as low as interest-rates.

Today’s official data has again reminded us of the positive ying of the UK’s employment and unemployment situation.

The employment rate (the proportion of people aged from 16 to 64 who were in work) was 73.9%, the highest since comparable records began in 1971………There were 22.88 million people working full-time, 338,000 more than for a year earlier. There were 8.42 million people working part-time, 167,000 more than for a year earlier.

These are another set of strong numbers and we note that the fear from the early days of the improvement that it was mostly in part-time jobs has ebbed away as full-time job creation has pushed ahead. Although there is the nagging worry that the full-time definition is tenuous at best (you say you are….).

Also we see another credit crunch era landmark for unemployment and in a good way.

The unemployment rate was 5.2%, lower than for a year earlier (6.0%). It has not been lower since the 3 months to January 2006.

Wages

These have underperformed in the credit crunch era and today’s numbers have reminded us of the issue again today. UK real wages using the official CPI  inflation measure peaked at 118 in April 2008 and at the end of October they were at 111.4 or 5.6% lower. So we are still singing along with Kate Bush on this front.

Be running up that road,
Be running up that hill,
Be running up that building.

Whilst we continue to see wage growth in 2015 there has been another sign of some fading of the strength of it.

Comparing the 3 months to October 2015 with the same period in 2014, real AWE (total pay) grew by 2.4 per cent, compared with 2.9 per cent in the 3 months to September.

In essence wage growth is real wage growth right now if we use CPI and around 1% lower if we use RPI and the fading theme was reinforced by the fact that the October number of 1.9% was not only pulling downwards but the weakest monthly number since February as well as being the first number since then to be worse than its 2014 counterpart. If we look at the theories related to the Phillips Curve then I am sure we have thrown them on the scrap heap more than once but they are again exposed here. Also for five years now I have critiqued the “output gap” theories which the Bank of England has pumped out again and again. As the labour market has very little “output gap” and wage growth is fading it is breathtaking that some still cling to it like a raft in white water.

The Resolution Foundation has tried to look forwards to 2016 and their overall conclusion was somewhat downbeat on this front too.

our central scenario has pay growth back down to 2.1% by the end of 2016.

They have developed a decent track record and express fears over what may happen in 2016 as they decide that the low inflation and tightening labour market influences on pay will decline..

Looking to 2016 and beyond, hanging our hopes on either of these would be both a roll of the dice and an exercise in diminishing returns, highlighting the importance of productivity keeping pace with inflation in the longer term.

As it happens today’s figures also pose a question about the new improved trend for productivity growth. If we look at hours worked we see this.

Total hours worked per week were just over 1 billion for August to October 2015. This was: • 6.2 million (0.6%) more than for May to July 2015 • 8.8 million (0.9%) more than for a year earlier.

If we look back we see the annual situation has some growth as GDP rose by 2.3% on a year ago making for a 1.4% productivity rise but if we come really up to date with the NIESR saying we have 0.6% quarterly  GDP growth that means no productivity growth if hours also rose by 0.6%. Has the flowering seen an autumn chill and faded?

Comment

Last time around I suggested that the UK labour market was in a Goldilocks type position although I should have made clearer that I meant relatively for the credit crunch era. Today has seen a clear example of the porridge being just right as we note continued employment growth and falls in unemployment.

However we bite on some salt in the porridge when we note that wage growth has been fading for the past 4 months now (3.6%,3.2%,2.1% and now 1.9%). Has the fall in the inflation numbers influenced this? Also it is a rough and ready calculation but future wage growth prospects are likely to be affected by the apparent end of the productivity blooming. This returns us to the long-running theme on here of real wage growth being in an overall downtrend that if we look back started before this century began. Unless we see a 2001 style “something wonderful” we seem unable to shake it off.

As we turn into 2016 then we are likely to see real wage growth continue if nothing else because if commodity prices remain at these levels inflation will be subdued but one day even the official bodies will have to face up to the fact that the credit crunch provided a paradigm shift in wages. Also we should not forget that there are plenty of issues with the data we receive including the fact that the wages numbers exclude the 4.61 million and rising who are self-employed.

There is a big event tonight so please those of you who are Star Wars fans enjoy! Also around 7 pm UK time something long promised by the Federal Reserve seems on the cards……

Shrinkflation

Chocoholics of a nervous disposition should take care before viewing the picture below.

 

 

 

 

The US economy cannot escape the “generation gap” either!

Today we arrive at Easter and as we try to forget the leaders debate in the UK last night we find ourselves facing a day where the Bureau of Labor Statistics presents the US employment report for March. This brings me to a long running theme of this website which is that on the surface the US economy looks good but as one digs deeper problems emerge. This has been reinforced by the recent trend to a combination of poor and disappointing economic data which has been greeted in many areas with surprise even when it is not one! On the other side of the coin we have an employment situation which looks very strong.

Total nonfarm payroll employment increased by 295,000 in February, and the unemployment rate edged down to 5.5 percent, the U.S. Bureau of Labor Statistics reported today.

The Generation War

However all is not as good as it may seem and in a repetition of the situation in the UK it is often newer usually younger entrants to the labour market who have been affected. Let us switch to earnings where there have been less promising numbers. Federal Reserve Governor Lael Brainard addressed this subject only yesterday.

inflation-adjusted full-time weekly earnings among 19- to 24-year-olds with only a high school diploma fell about 5 percent between 2008 and 2012.

Also if we look beyond headline unemployment into the world of underemployment then the clouds darken here too.

In 2012, roughly 45 percent of college graduates between the ages of 22 and 27 were underemployed, up by one-third relative to 2001 and the highest underemployment rate since the early 1990s.

She was also concerned about the longer lasting effects of the impact of the Great Recession.

the employment rate of those graduating from college during the Great Recession may recover relatively soon, but their earnings may be reduced for up to a decade or longer as this cohort initially secures lower-quality jobs and then only gradually works its way back up to the normal earnings trajectory.

So it is not a good time to be a college graduate in the United States and as we wonder what is now normal this may persist.

Student Debt

An interesting segway which repeats themes established on this website if the way that Governor Brainard links weaker employment and earnings opportunities with the rise of student debt.

As with any investment, however, the returns on educational investments are not uniform, and some investments do not pay off. The risk of a low return is accentuated when the investment is financed through debt and based on the assumption that the educational investment will translate into higher wages that make the debt payments affordable.

This is a good point as higher debt clashes with weaker earnings trends for obvious reasons and poses a different type of affordability question to looking at currently low interest-rates. Indeed something else happened as college schooling got more expensive too just as it became less valuable!

Since the outset of the recession, the annual published tuition at four-year public colleges increased 24 percent, after adjusting for inflation, during a period when real median incomes declined 8 percent.

Could that be a clearer example of inflation? Odd how we get so many is it not in a world where supposedly there is no inflation?! Actually there were arguments in the UK that it should not be in consumer inflation presumably on the ground that by going up it was misleading!In fact it is part of continuing services inflation as we see the price of goods fall. Just for the avoidance of doubt it is in the US CPI with a weight of 1.49%.

Also inflation measures usually adjust for quality well in a upwards direction anyway. But implicit in Governor Brainard’s discussion is a downwards quality adjustment which she then makes explicit.

Despite the apparent lower likely average return to education at for-profit schools, attendance at these schools has increased faster since the financial crisis than at other institutions…..This rapid growth, and the fact that for-profit colleges disproportionately attract first-generation college students as well as students relying on debt to fund their education, bears careful scrutiny.

The Housing Market

The above has led to this.

Moreover, the fraction of young adults who own homes also fell substantially: After peaking at 22 percent in 2005, the overall rate of homeownership among young people fell to 16 percent in 2014.

Although she does not put it quite like this we find ourselves mulling the fact that the US Federal Reserve is seeing something of a policy backfire here. It could hardly have done more to help the US housing market with its near zero interest-rates and expanded its balance sheet to US $4.4 trillion including some US $1.73 trillion of mortgage-backed securities. Yet the view of young people is apparently this.

Moreover, there is some evidence that today’s young people have a skeptical view of the wisdom of buying a home as a result of the housing crisis.

This is rather reminiscent of the Bank of England and its policy impact on savings in the UK. In fact central bankers are seeing ever more of these types of policy backwashes. This has an impact on the modern holy grail of central banking which is what it/they define as wealth and the rest of us call asset prices.

Nonetheless, if the decline in homeownership among young people proves persistent, the implications for asset building for the future could be of concern, since homeownership remains an important avenue for accumulating wealth, particularly for those with limited means.

How dare young people not do as they are told!

Economic growth may continue to disappoint

An interesting point bringing a few themes together was made by Bill McBride of Calculated Risk who did some research after spotting this in the Wall Street Journal.

The fourth quarter report means that growth for all of 2014 clocked in at 2.4%, which is the best since 2.5% in 2010. It also means another year, an astonishing ninth in a row, in which the economy did not grow by 3%.

He then looked at US demographics and noted that if you look a labour market trends you should not be surprised by that and his conclusion was.

Right now, due to demographics, 2% GDP growth is the new 4%.

Recent Data disappoints

Trade Data

You can take this two ways. The glass half-full version is that at reduction in the February trade deficit to US $35.4 billion will boost US GDP for the first quarter of 2015. The glass half-empty view is to wonder why imports fell by over 4% after falling by 3% in January, after all a higher US Dollar makes them cheaper. So we return to wondering about the strength of demand which is reinforced by the fact we have seen Iron Ore prices fall to new credit crunch era lows below US $50 per tonne.

Retail Sales

The glass half-full version is that retail sales continue to grow. From the Census Bureau.

Total sales for the December 2014 through February 2015 period were up 2.9 percent (±0.7%) from the same period a year ago.

The not so positive nuance is that month on month the numbers have been falling such that February alone was only 1.7% higher than a year ago. Whilst single month figures in this area are unreliable we do seem to be seeing a dipping trend. The adjusted number peaked at US $447.1 billion in November and was US $437 billion in February.

Just to be clear the numbers above do not adjust for inflation so we should perhaps be grateful it is near zero,officially anyway. Oh and take your pick about this from the Ford motor company this week.

Ford’s March retail sales were up 1 percent, fleet sales were down 13 percent, and overall sales were 235,929 vehicles, down 3 percent.

Durable Goods

This is following a similar pattern to the retail sales situation where we have year on year growth of 3% but the recent situation is not so positive.

New orders for manufactured durable goods in February decreased $3.2 billion or 1.4 percent to $231.3 billion, the U.S. Census Bureau announced today. This decrease, down three of the last four months, followed a 2.0 percent January increase.

New orders in 2015 have only been 0.5% higher than last year.

Comment

There is much to consider in the state of play of the US economy. The forward momentum the official statistics gave it faded at the end of 2014 and this new uncertainty seems to have persisted into 2015.We wait to see how the oil price fall impacts as we wonder if the negatives (shale production) is impacting earlier than the positives. Not everybody has adjusted as the San Francisco Federal Reserve spectacularly demonstrated less than a month ago.

We expect a similar dynamic in the first quarter of 2015, with GDP growth being pushed up by strong consumer spending but pushed down by declining net exports.

So much for reality being a friend of theirs. But if we look deeper into the data we see that there are trends at play we see elsewhere. The leaders debate in the UK took a question on prospects for younger people last night probably about the same time that Governor Brainard was speaking. That is not really a coincidence!

If you want the blue pill then blame the weather which is a convenient fall-guy/girl. for the rest of us there is the issue of how it can always be the weathers fault. Oh and the economists in San Francisco discovered something that everybody else has now perhaps since economies began. The emphasis is mine.

Many people find jobs without ever reporting actively looking for one. This implies that, rather than them finding jobs, the jobs actually find them. Analysis of data on workers’ search behavior suggests that this is the case for a majority of the people who get hired.

I will leave readers to decide whether that means there is hope for central bankers or demonstrates that there isn’t any!

Happy Easter to you all.