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

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

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

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

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

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

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

But I’m a long, long way from home

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

Redundancies

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

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

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

Using the tax system

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

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

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

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

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

Unemployment

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

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

The reason for that is the furlough scheme.

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

Following international guidelines has led us up the garden path.

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

Wages

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

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

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

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

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

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

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

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

In terms of actual pay those numbers mean this.

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

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

Comment

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

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

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

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

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

 

UK labour market data confirm that we are in an economic depression

Today has brought news that adds to my contention that the UK is experiencing an economic depression right now. We have to look deeper than the conventional signals because tight now some of them are not working. For example the official unemployment definition set by the International Labor Organisation or ILO is missing the target by quite a lot. To use a football analogy if they took a shot at goal they not only miss it but they miss the stand as well. This is why.

Under this definition, employment includes both those who are in work during the reference period and those who are temporarily away from a job. The number of people who are estimated to be temporarily away from work includes furloughed workers, those on maternity or paternity leave and annual leave.

As we stand that covers approximately an extra 4 million people which is a huge number compared to what are being reported as unemployed as you can see below.

Estimates for June to August 2020 show an estimated 1.52 million people were unemployed, 209,000 more than a year earlier and 138,000 more than the previous quarter.

This can be misleading for the unwary and I note that the BBC Economics Editor Faisal Islam has failed to note this development.

Sharp spike up in unemployment rate to 4.5%, above 1.5 million, after revisions and the headline numbers finally catching up with grim reality. Suggests monthly number in August as furlough unwound around 5%.

If you actually think the UK unemployment rate is either 4.5% or 5% then I have a bridge to sell you. Poor old Faisal looks completely lost at sea.

Unemployment still low by historic (3 year high) and international standards – but on way up…

It is in reality as I shall explain high but recently has fallen so he is wrong in every respect.

Hours Worked

The actual signal of a depression in the UK labour market is provided here which looks through the issue of the furlough scheme muddying the waters. Let us start with the better part of it which shows a post lockdown ( which just in case we should now call Lockdown 1.0) improvement.

Between March to May 2020 and June to August 2020, total actual weekly hours worked in the UK saw a record increase of 20.0 million, or 2.3%, to 891.0 million hours. Average actual weekly hours worked saw a record increase of 0.7 hours on the quarter to 27.3 hours.

However the overall picture is of a 15% fall in hours worked. Because is we look back to this time last year ( June to August for this purpose) the number of hours worked was 1.049.2 million. Sadly we get little detail on what is the most significant number right now and the maths is mine. The bit below hides more than it reveals.

Although decreasing over the year, total hours worked had a record increase on the quarter, with the June to August period covering a time when a number of coronavirus lockdown measures were eased.

Redundancies

These provide another clear signal as we note this.

Redundancies increased in June to August 2020 by 113,000 on the year, and a record 114,000 on the quarter, to 227,000. The annual increase was the largest since April to June 2009, with the number of redundancies reaching its highest level since May to July 2009.

So in round terms the rate of redundancies has doubled. There is also a hint that things are also getting worse.

The redundancies estimates measure the number of people who were made redundant or who took voluntary redundancy in the three months before the Labour Force Survey interviews; it does not take into consideration planned redundancies.

Pay as You Earn ( PAYE)

The tax data gives us another insight.

Early estimates for September 2020 indicate that there were 28.3 million payrolled employees, a fall of 2.2% compared with the same period in the previous year and a decline of 629,000 people over the 12-month period. Compared with the previous month, the number of payrolled employees increased by 0.1% in September 2020 – equivalent to 20,000 people.

As you can see these numbers are much more timely than the other labour market data which only reach March. It also shows much more of a change than the unemployment numbers but is still undermined somewhat by the existence of the furlough scheme. There will be payrolled employees who are being subsidised by the furlough scheme until the end of October.

Wages

These are giving the same signal as we note this.

In June to August 2020, the rate of annual pay growth was unchanged for total pay but positive 0.8% for regular pay. The difference between the two measures is because of subdued bonuses, which fell by an average negative 15.3% (in nominal terms) in the three months June to August 2020.

So pay growth is no longer negative as we note an unsurprising divergence between regular pay and bonuses. This compares to where we were pre pandemic as shown below.

The rate of growth stood at 2.9% in December 2019 to February 2020 immediately prior to the coronavirus (COVID-19) pandemic,

We saw wages fall and now they are flatlining. This means that in real terms they are doing this according to the official release.

In real terms, total pay is growing at a slower rate than inflation, at negative 0.8%. Regular pay growth in real terms is now positive, at 0.1%.

So if we use a better inflation measure we see that real wages are falling by a bit more than 1% per annum. This means we are even further below the pre credit crunch peak as we note that this measure has experienced its own version of a Japanese style lost decade.

The aggregate numbers hide a few things as we note some substantial shifts within them.

The public sector saw the highest estimated growth, at 4.1% for regular pay. Negative growth was seen in the construction sector, estimated at negative 5.3%, the wholesaling, retailing, hotels and restaurants sector, estimated at negative 1.8%, and the manufacturing sector, estimated at negative 0.9%. This is, however, an improvement over the growth rates during May to July 2020.

We can learn more from the August data if we look at it as a single month. This is because wages rose from £531 per week to £550 meaning that they were 1.9% higher than a year before. A fair bit of this was the finance sector which saw weekly wages rise by £32 to £721. However there was also welcome news for construction up by £12 to £631 and the hospitality sector where they rose £8 to £364 per week.

Comment

Looking at properly today’s UK labour market release confirms the prognosis of the economic growth or GDP release from Friday. It is not that we lack some green shoots as the August wage data is one and this from the PAYE numbers adds to it albeit is too good to be true right now.

Early estimates for September 2020 indicate that median monthly pay increased to £1,905, an increase of 4.3% compared with the same period of the previous year.

But on the other side of the coin the annual fall in hours worked correlates with the decline in GDP we have seen pretty well. I hope that we can get through this more quickly than in the past but the reality is that these are falls of a size which indicate an economic depression. If reality is too much then you can take a Matrix style blue pill and follow the BBC reporting a 4.5% unemployment rate.

As a caveat all of these numbers are subject to wider margins of error right now. You may be surprised how few are surveyed for the main data source

One key data source for understanding the UK labour market is the Labour Force Survey (LFS), which usually covers around 35,000 households a quarter.

At the moment that will be less representative because in switching to a telephone based system they discovered a change that seems too big to be true.

Back in February around 67 per cent of households in their first interview in the LFS sample were owner occupiers and 32 per cent were renters. But in July this was around 77 per cent and 21 per cent respectively……… For tomorrow’s release we will therefore reweight the estimates so that the shares of owner occupiers and renters are the same as before the pandemic hit in March.

 

 

 

Will the economy of France shrink again?

The pandemic era has thrown up so many economic questions, but now we seem to be entering a new phase. Over the past day or two it has been La Belle France which has been exhibiting this. I have pointed out more than a few times that the tendency for forecasters official and otherwise to assume a strong economic bounce back in 2021 and 2022 was based on little more than Hopium, as we are still less than certain about 2020. An example of the issues facing this year came from the BBC a couple of days ago.

Paris will shut all bars completely from Tuesday after the French government raised the city’s coronavirus alert to maximum following a period of high infection rates.
Bars, gyms and swimming pools will all be closed for two weeks in a bid to curb the spread of the virus, the city’s police chief said.

But restaurants will remain open if strict hygiene rules are in place.

On Sunday France reported 12,565 cases of Covid-19.

France24 added to the theme only yesterday.

Covid-19: France records new all-time high of nearly 19,000 cases in 24 hours.

As it goes onto point out there are economic consequences as it highlights a French tradition.

They form part of a centuries-old tradition and are an iconic feature of the French capital, but Paris’s historic riverside booksellers, known as ‘bouquinistes’ are under threat. Like many other businesses that rely on tourism, Covid-19 has taken a devastating toll on their income.
A total of 227 bouquinistes, who sell second-hand books as well as sometimes souvenirs, line the embankment of the River Seine.

This returns us to a point we looked at when the pandemic began which is the impact of such an event on economies which rely on a lot of tourism.

The Economic Situation

France’s official statistical body Insee has tried to allow for the changing situation.

Alongside “barrier gestures”, more restrictive containment measures which more directly affect economic activity (closures of bars, restaurants, sports halls, etc.) are, at this stage, more targeted territorially and sectorally than in the spring. Air passenger transport remains severely affected, as it has since the start of the health crisis.

We have seen an example of the latter issue in the news today with Easyjet suggesting it will lose more than £800 million this year with passenger numbers halved.

Their analysis leads to a change in their view and the emphasis is mine.

In September, the continued improvement in the business climate in France is mainly due, in most sectors, to improved judgment on past production, while the business outlook for the next three months is down. , according to business leaders interviewed in business surveys.

Below is where they think we are.

After the sharp rebound associated with deconfinement (+ 16% expected in the third quarter, after – 13.8% in the second and – 5.9% in the first), economic activity could thus slow down at the end of the year under the effect of the resurgence of the epidemic.

What might slow down? Again the emphasis is mine.

In a scenario where, in the fourth quarter, the most affected services (hotels and restaurants, transport services, recreational and leisure activities) would return, after an improvement during the summer, to their level of activity of last June and where investment should remain, by a wait-and-see policy, at a level close to that of the third quarter, growth would be zero at the end of the year.

That is more than a little uncomfortable for the official predictions for 2021 as we should be rebounding rather than flat-lining. In terms of numbers we have this.

In this scenario, French GDP would remain, at the end of the year, 5% below its pre-crisis level, as on average during the summer……..In total for the year 2020, the forecast of GDP contraction remains in the order of -9%.

The swing factor here is consumption. We will see stellar levels of growth for the third quarter based on the numbers we know. But like in A Question of Sport the real issue is what happens next?

The continuation of these restrictions,
and the dissipation of catch-up effects by
elsewhere, would lead in the fourth quarter to
consumption slightly lower than
in the previous quarter. On the whole of
the year, consumption would decrease by 7%
compared to 2019.

It has been an extraordinary year with normal incomes hammered but government intervention leading to this.

With the rebound in consumption – even attenuated at the end of the year – the household savings rate, which had almost doubled in the second quarter (due to forced savings), should come back to around 17% in the second half, a level slightly higher than before the crisis.

At some point this will end and then consumption will face the consequences of this.

The unemployment rate should jump in the third quarter and reach 9.7% at the end of the year.

Bank of France

It has joined the fray this morning with this.

According to the business leaders interviewed, activity is, as expected a month ago, stable in September in
industry as in services and construction. It remains overall below its previous level
crisis, but still with a strong heterogeneity between sectors. Outlook for the month of October
also show a relative stability of activity in industry, services and construction.

It points out that there is a wide disparity in sectors but at least in some areas it suggests falls last month.

The production capacity utilization rate slipped slightly to 73% on average in September after 75% in August (and 79% before the crisis). It is on the rise in the chemical industry but falls significantly in the aeronautics and other transport sector.

Comment

If we take a look at the position it is not the overall situation that is the issue it is the structure. The 9% fall in GDP is well within the margin of error at a time like this from the Europa summer forecast.

but the forecast for 2020 has been revised down to about –
10 ½% from close to -8 ¼% in the spring.

The issue is the direction of travel which began hopefully with a strong recovery push. But now we see that rather than recovering towards the end of the year we may see stagnation or if the latest numbers are any guide a further decline. This poses quite a challenge to the next part of the summer forecast.

The projected economic recovery is set to remain on track in 2021, with GDP expanding by some 7 ½%.

We should of course have realised via the use of the phrase “on track” which meant anything but in the Greek crisis. In terms of specifics as we have noted today this part is being questioned.

After sinking in the first half of the year, private consumption is projected to gather momentum from the second half onwards.

If we now switch to what this means? We have two major consequences. The first is that the depression starting in 2020 looks set to be longer than expected just like wars which invariably are predicted to be over by Christmas. Sadly that means more people will be unemployed for longer.Should the French economy contract again it will be four out of the latest five. Also it means that there will be no end in sight to central bank intervention and we may see even more negative interest-rates and QE bond buying.

 

Argentina is nearing economic collapse

Sometimes an economy can really stand out and in this instance I do not mean in a good way. Let me give you an example where this week I have looked at the Bank of England with its official interest-rate of 0.1% and the European Central Bank or ECB with its -0.5% one. This morning the Norges Bank of Norway has confirmed a 0% rate and the Swiss National Bank one of -0.75%. The latter looks ever more permanent lasting as it has for over 5 years now. But as a group they are the world in which we live except not everyone does.

The gradual decline in the monetary policy rate continues
Thursday, March 5, 2020. Today, the BCRA’s Board of Directors ordered a new reduction in the lower limit of the LELIQ interest rate of 2 points, from 40% to 38% in annual nominal terms.

We have looked at the problems of Argentina several times before but at this moment we simply note the interest-rate which is 38% above what we have come to consider the norm. They seem uncomfortable with the wider world knowing this as they have stopped producing English updates on the central bank website. One area where they have been ahead is the size of the interest-rate cuts they have made as they have been 12%  in 2020. But in spite of what are unthinkable moves elsewhere we are left withan interest-rate of 38% which would be described by Taylor Swift as a sign of.

Now I’m lyin’ on the cold hard ground
Oh, oh
Trouble, trouble, trouble
Oh, oh
Trouble, trouble, trouble

Actually it is even worse than that according to the BCRA.

With this reduction, the reference rate in effective terms stands at 45.4% per year. This keeps it in sufficient positive territory to promote saving in pesos and at the same time rebuild the credit situation of families and companies through the reactivation of credit.

So you reactivate credit with a 45% interest-rate do you?

I note the reference above to the Peso and see that the BCRA is also looking to mandate or centrally control savings rates in Pesos.

Following the policy to safeguard savings in domestic currency, the BCRA decided to raise, as from August,
the floor of interest rates that financial institutions must pay for natural persons’ time deposits in pesos for
up to $1 million, from 79% to 87% of the monetary policy rate. This way, retail depositors will have a
minimum return of 33.06% APR (38.57% EAR). In addition, the BCRA increased to 0.75 the coefficient to
determine the fixed interest rate on UVA deposits with an early-payment option, from 26.6% to 28.5%.

The Exchange Rate

I noted this being reported which is not entirely reassuring.

Today Uruguay’s famous exchange houses priced the Argentine peso exchange at $0.

Actually that is not quite right as some exchanges simply do not want Pesos and therefore offer nothing for them which is revealing in itself as @JavierdeHaedo explains below.

The BROU slate is 0.14 – 0.60 and the arbitrage 0.314 pesos per Argentine (AR $ 135 in the blue).

This is really rather different to the official exchange rate of 75.65 to the US Dollar which itself has fallen by 33% over the past 12 months. So let me hand you over to the Buenos Aires Times.

“Right now you can’t buy or sell dollars,” Banco Galicia says in a notice that appears for retail clients. “We apologise. We are adapting to the new rules.”

The technical problems are another roadblock for Argentines who have been furiously converting their pesos into dollars amid speculation that the local currency is due for a crash. The government and Central Bank, seeking to hold onto hard currency, slapped a new 35 percent tax on dollar purchases, which already faced a separate 30 percent levy. They also limited the ability of people receiving government assistance to obtain greenbacks, while keeping a monthly limit of no more than US$200 in purchases.

Okay so we have a currency which has either fallen heavily ( the official version) or pretty much collapsed ( the unofficial market version) with the US Dollar the currency of choice.

Along the way we get a lesson in perspectives as we see the US Dollar described as a “hard currency”. We do not hear that often and it is an arrow in the eye for those saying it role as the world’s reserve currency is weakening.

Bonds

This is a section that can be described as you really couldn’t make it up.

Argentina’s new dollar bonds have plunged back into distressed territory just two weeks after the nation restructured almost US$65 billion in debt.

The securities fell for the fourth consecutive day Monday to an average 39 cents on the dollar. The US$16.1 billion in bonds maturing 2030 tumbled 3.1 cents to 40.3 cents, the lowest since they began trading on September 8 at about 50 cents.

Let me take you back to June 2017 when Reuters reported this.

Argentina sold $2.75 billion of a hotly demanded 100-year bond in U.S. dollars on Monday, just over a year after emerging from its latest default, according to the government.

The South American country received $9.75 billion in orders for the bond, as investors eyed a yield of 7.9 percent in an otherwise low yielding fixed income market where pension funds need to lock in long-term returns.

So investors worth US $7 billion were very lucky. Anyway yesterday the Buenos Aires Times had something which made me laugh, albeit in a gallows humour type of way.

Less than a month after Argentina’s US$65-billion debt restructuring, bond prices show growing concern the government may struggle to pay its obligations.

Comment

We see a financial system which is in almost complete disarray. Interest-rates are very high both in absolute and relative terms with the exchange-rate either heading south quickly ( the official version) or more realistically having pretty much collapsed. If you were unwise enough to invest in an Argentine bond you have singed fingers.

Now let us switch to the real economy and see the impact.

Economic activity declined 16.2 percent in the second quarter compared to the first, reflecting the full impact of a nationwide Covid-19 lockdown implemented in late March. Economists had forecast a 16.6 percent quarterly decline.

From a year ago, economic activity dropped 19.1 percent in the quarter, the largest drop since at least 2004. Investment fell nearly 40 percent from a year earlier.

In the six-month comparison, activity fell 12.6 percent, compared to the same period in 2019, INDEC said. ( Buenos Aires Times)

That compares to Uruguay at -9% and Brazil at -9.7% for GDP on the second quarter.The latter provides food for thought for those who consider Brazil to be mismanaged. Yesterday brought more bad news.

Unemployment in Argentina rose a 16-year high to 13.1 percent in the second quarter of 2020, the INDEC national statistics bureau revealed Wednesday, pushed higher by economic turmoil and the coronavirus pandemic.

At this time we know that the international definition of unemployment has failed so the real position is likely to be much worse.

The situation was summed up back in the day by the Beatles.

You never give me your money
You only give me your funny paper
And in the middle of negotiations
You break down

Also they went onto the real economy.

Out of college, money spent
See no future, pay no rent
All the money’s gone, nowhere to go
Any jobber got the sack

Meanwhile supporters of Modern Monetary Theory or MMT have a problem because turning the monetary taps on like this has led to quite a disaster. Although I do have some sympathy with their new view that higher interest-rates can weaken a currency although by a different route in that they are rarely raised by enough to be material.

My sympathies go to the Argentines as I note that the Corona Virus outbreak also looks out of control as deaths peak.

The UK underemployment rate rose as high as 18%

At a time of great uncertainty and not a little worry for many we should be able to turn to official statistics for at least a benchmark. Sadly the Covid-19 pandemic has found them to be wanting in many respects. Let me illustrate this with an example from the BBC.

The UK unemployment rate has risen to its highest level for two years, official figures show.

The unemployment rate grew to 4.1% in the three months to July, compared with 3.9% previously.

There are all sorts of problems with this right now which essentially come from the definition.

Unemployment measures people without a job who have been actively seeking work within the last four weeks and are available to start work within the next two weeks.

During this period many will not bother to look for work as for example some think they still have a job.

Last month, we reported on a group of employees who, because of the impact of the coronavirus (COVID-19) pandemic, have reported that they are temporarily away from work and not getting paid. Similarly, there is a group of self-employed people who are temporarily away from work but not eligible for the Self-Employment Income Support Scheme (SEISS). Although these people consider themselves to have a job and therefore are consistent with the ILO definition of employment, their lack of income means that they may soon need to look for work unless they are able to return to their job.

A sort of job illusion for some with the problem being is how many? I would like all of them to return to their jobs but also know they will not. The concept though can be widened if we add in the furlough scheme which was designed to save jobs but as a by product has driven a bus through the employment and unemployment data.

The number of people who are estimated to be temporarily away from work (including furloughed workers) has fallen, but it was still more than 5 million in July 2020, with over 2.5 million of these being away for three months or more. There were also around 250,000 people away from work because of the pandemic and receiving no pay in July 2020.

So we are unsure about 5 million workers which dwarfs this.

Estimates for May to July 2020 show an estimated 1.40 million people were unemployed, 104,000 more than a year earlier and 62,000 more than the previous quarter.

So we see that the number is simply way too low which means that all of the estimates below are at best misleading and in the case of the employment rate outright laughable.

the estimated employment rate for all people was 76.5%; this is 0.4 percentage points up on the year and 0.1 percentage points up on the quarter…….the estimated UK unemployment rate for all people was 4.1%; this is 0.3 percentage points higher than a year earlier and 0.2 percentage points higher than the previous quarter…….the estimated economic inactivity rate for all people was 20.2%, a joint record low; this is down by 0.6 percentage points on the year and down by 0.3 percentage points on the quarter

The economic inactivity measure is perhaps the worst because the worst level of inactivity in my lifetime is being recorded as a record low. This embarrasses the Office for National Statistics as we are in “tractor production is rising” territory.

What can we use?

A measure which is working pretty well seems to be this.

Between February to April 2020 and May to July 2020, total actual weekly hours worked in the UK decreased by 93.9 million to 866.0 million hours. Average actual weekly hours fell by 2.8 hours on the quarter to 26.3 hours.

This shows a much larger change than that suggested by the official unemployment measure. We can in fact learn more by looking further back.

Over the year, total actual weekly hours worked in the UK decreased by 183.8 million to 866.0 million hours in the three months to July 2020. Over the same period, average actual weekly hours fell by 5.8 hours to 26.3 hours.

On this measure we see that if we put this into the employment numbers we would see a fall approaching 6 million. So in effect the underemployment rate was in fact heading for 18%. If we simply assume that half of it was unemployment we have an unemployment rate of 11% which in economic terms I am sure we did. Now the economy is more open perhaps it is 7-8%.

The 8% unemployment rate does get some support from this.

Between July 2020 and August 2020, the Claimant Count increased by 73,700 (2.8%) to 2.7 million (Figure 10). Since March 2020, the Claimant Count has increased by 120.8% or 1.5 million.

It is hard not to have a wry smile as I type that because back in the mid 1980s Jim Hacker in Yes Minister told us nobody believes the unemployment figures and those are the one he was referring to. There are other references to that sort of thing as well.

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.

Pay

The opening salvo is less than reassuring.

The rate of decline in employee pay growth slowed in July 2020 following strong falls in the previous three months;

We find that the pattern is what we would be expecting.

Growth in average total pay (including bonuses) among employees was negative 1.0% in May to July, with annual growth in bonus payments at negative 21.4%; however, regular pay (excluding bonuses) was positive at 0.2%.

It has been the public sector which has stopped the numbers being even worse.

Between May to July 2019 and May to July 2020, average pay growth varied by industry sector . The public sector saw the highest estimated growth, at 4.5% for regular pay. Negative growth was seen in the construction sector, estimated at negative 7.5%, the wholesaling, retailing, hotels and restaurants sector, estimated at negative 3.2%, and the manufacturing sector, estimated at negative 1.7%.

However there was an improvement for many in July.

 For the construction, manufacturing, and the wholesaling, retailing, hotels and restaurants sectors, the July 2020 estimate of annual growth shows sign of improvement when compared with May to July 2020.

If we look at the construction sector then weekly wages rose from £573 in June to £620 in July so there was quite a pick-up of which £10 was bonuses.

Switching to an estimate of real pay we are told this.

In real terms, total pay growth for May to July was negative 1.8% (that is, nominal total pay grew more slowly than inflation); regular pay growth was negative 0.7%.

Although those numbers rely on you believing the inflation numbers which I do not.

Comment

We have found that the official ILO ( International Labor Organisation) methodology to have failed us in this pandemic. Even worse no effort has been made to fix something we have been noting ( in this instance looking at Italy) since the third of June.

and unemployment sharply fell

If you actually believe unemployment fell in Italy in April I not only have a bridge to sell you I may as well sell the river as well.

Looking at the data suggests an underemployment rate of the order of 20% in the UK giving us an actual unemployment rate perhaps double the recorded figure.

If we switch to pay and wages we need to remind ourselves of those who are not counted. For example the self-employed and companies with less than ten employees. Such omissions did not bother the Dr.Martin Weale review back in the day but perhaps one of the ONS Fellows could help like er Dr.Martin Weale. We are back to reliving Yes Minister again.

Meanwhile according to Financial News some are resorting to desperate measures to get GDP rising again.

‘It could get really messy’: Finance workers’ cocaine use spikes in lockdown

Is the US economy slowing again?

Yesterday brought news that upset something of a sacred cow of these times. And no I do not mean the fact that Lionel Messi not only still has in his possession but actually uses a fax machine. That perhaps trumps even his transfer request. Across the Atlantic came news which challenged the growing consensus about economies soaring up, up and away after the Covid-19 pandemic. So let me hand you over to the Conference Board.

The Conference Board Consumer Confidence Index® decreased in August, after declining in July. The Index now stands at 84.8 (1985=100), down from 91.7 in July. The Present Situation Index – based on consumers’ assessment of current business and labor market conditions – decreased sharply from 95.9 to 84.2. The Expectations Index – based on consumers’ short-term outlook for income, business, and labor market conditions – declined from 88.9 in July to 85.2 this month.

As the consumer is a large part of the US economy a further decline in August poses a question for the recovery we are being promised. Indeed those promising such a recovery forecast it would be 93 so they seem to be inhabiting a different universe. They managed to miss consumers reporting that things had got substantially worse in August. The expectations index decline was more minor but it is on the back of a much lower current reading.

The accompanying explanation put some more meat on the bones.

“Consumer Confidence declined in August for the second consecutive month,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “The Present Situation Index decreased sharply, with consumers stating that both business and employment conditions had deteriorated over the past month. Consumers’ optimism about the short-term outlook, and their financial prospects, also declined and continues on a downward path. Consumer spending has rebounded in recent months but increasing concerns amongst consumers about the economic outlook and their financial well-being will likely cause spending to cool in the months ahead.”

That made me look into the detail for the jobs market which confirmed why consumers think that things have got worse.

Consumers’ appraisal of the job market was also less favorable. The percentage of consumers saying jobs are “plentiful” declined from 22.3 percent to 21.5 percent, while those claiming jobs are “hard to get” increased from 20.1 percent to 25.2 percent.

The change in the “plentiful” number is within the margin of error but the “hard to get” shift is noticeable. There was a similar shift in business conditions where there was what seems a significant increase in the “bad” category.

The percentage of consumers claiming business conditions are “good” declined from 17.5 percent to 16.4 percent, while those claiming business conditions are “bad” increased from 38.9 percent to 43.6 percent.

As you can see below this is a long-running series and so it comes with some credibility.

In 1967, The Conference Board began the Consumer Confidence Survey (CCS) as a mail survey
conducted every two months; in June 1977, the CCS began monthly collection and publication. The CCS
has maintained consistent concepts, definitions, questions, and mail survey operations since its
inception.

The alternative view was provided by MarketWatch.

What they are saying? “I have to admit that I do not take this latest reading at face value,” said chief economist Stephen Stanley of Amherst Pierpont Securities. “If you believe the number, then consumers are feeling worse in August than they were in the depths of the lockdown. I can’t imagine that anyone believes that.”

Perhaps he was one of those who thought it would be 93.

The Housing Market

We can now shift to a look at the market which will have every telescope at the US Federal Reserve pointing at it.

Sales of new single-family houses in July 2020 were at a seasonally adjusted annual rate of 901,000, according to
estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development.
This is 13.9 percent (±20.0 percent)* above the revised June rate of 791,000 and is 36.3 percent (±27.4 percent)
above the July 2019 estimate of 661,000.

There may well have been a cheer at the Fed as the news was released. In absolute terms the main rise was in the south but in percentage terms it was the Mid-West that led with a more than 50% rise on the previous average for this year.

However there is a catch.

For Sale Inventory and Months’ Supply
The seasonally-adjusted estimate of new houses for sale at the end of July was 299,000. This represents a supply of
4.0 months at the current sales rate.

That does not add up until we remind ourselves that like the GDP data the numbers are annualised. If you check the actual data sales rose from 75,000 in June to 78,000 in July compared to a nadir of 52,000 in April.

So we see that for all the hype actual new homes sales rose by around 40,000 in response to this reported by Yahoo Finance.

The weekly average rates for new mortgages as of 20th August were quoted by Freddie Mac to be:

  • 30-year fixed rates increased by 3 basis points to 2.99% in the week. Rates were down from 3.56% from a year ago. The average fee remained unchanged at 0.8 points.
  • 15-year fixed rates rose by 8 basis points to 2.54% in the week. Year-on-year, rates were down from 3.03%. The average fee fell from 0.8 points to 0.7 points.
  • 5-year fixed rates increased from 2.90% to 2.91% in the week. Rates were down by 41 points from last year’s 3.32%. The average fee fell from 0.4 points to 0.3 points.

House Prices

Our central bankers would also be scanning for house price data.

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 4.3% annual gain in June, no change from the previous month.

Actually it is a 3 month average so if you prefer it is a second quarter number so apparently as the economy plunged house prices rose. Some detail as to what happened where is below.

“June’s gains were quite broad-based. Prices increased in all 19 cities for which we have data, accelerating in five of them. Phoenix retains the top spot for the 13th consecutive month, with a gain of 9.0% for June. Home prices in Seattle rose by 6.5%, followed by Tampa at 5.9% and Charlotte at 5.7%. As has been the case for the last several months, prices were particularly strong in the Southeast and West, and comparatively weak in the Midwest and (especially) Northeast.

Comment

The consensus view is along the lines of this from the end of last week.

  • The New York Fed Staff Nowcast stands at 14.6% for 2020:Q3.
  • News from this week’s data releases decreased the nowcast for 2020:Q3 by 0.2 percentage point.
  • Negative surprises from the Empire State Manufacturing survey and housing starts data drove most of the decrease.

A strong rebound in the economy is the expectation but the consumer confidence report poses a question about some of that. Then we note that the housing data looks less positive once we allow for the annualisation and indeed seasonal adjustment in a year which is anything but normal.

That provides some food for thought for the US Federal Reserve as it gets ready to host its annual “Jackson Hole” symposium. I have put it in quote because this year the trip is virtual rather than real. Should they announce as they have been hinting that the new policy will be to target average inflation – which will be a loosening as the measure of official inflation is below target – we are left wondering one more time if Newt from the film Aliens will be right again?

It wont make any difference

The Investing Channel

UK wages are falling in both real and nominal terms

It is the UK that is in the economic spotlight this morning as we look to dig some insight out of the labour market figures. Many of the usual metrics are failing us as we have looked at originally with reference to Italy, but some are working. The best guide we get to the fall in employment comes from this.

Between January to March 2020 and April to June 2020, total actual weekly hours worked in the UK decreased by a record 191.3 million, or 18.4%, to 849.3 million hours.

This compares to 16.7% or 877.1 million hours last month. So as you might expect the rate of change has slowed quite a bit as lockdown began to be eased but we are still falling.In terms of context there is this.

This was the largest quarterly decrease since estimates began in 1971, with total hours dropping to its lowest level since September to November 1994. Average actual weekly hours fell by a record 5.6 hours on the quarter to a record low of 25.8 hours.

The weekly numbers have dipped further too as they were 26.6 hours last month.

If we look at the annual picture for more perspective we see that whilst the vast majority of the change is “right here, right now” as Fatboy Slim put it we can see that the economy was hardly flying before the Covid-19 pandemic. Although in something of an irony I suppose there were phases where productivity was better.

As to the sector worst hit there is no great surprise.

The accommodation and food service activities industrial sector saw the biggest annual fall in average actual weekly hours, down 15.4 hours to a record low of 13.0 hours per week.

The Office for National Statistics has been trying to do a weekly breakdown which tells us this.

During May we saw average actual hours start to increase slowly for the self-employed, however this increase has slowed down and hours remained relatively flat throughout June.

Here it is in graphical format.

So we learn a little but this only takes us to the end of June.

Falling Wages

The opening salvo warns us that there is trouble ahead.

Employee pay growth declined further in June following falls in April and May; growth has been affected by lower pay for furloughed employees since March, and reduced bonuses; nominal regular pay growth for April to June 2020 is negative for the first time since records began in 2001.

Firstly records did not begin in 2001 as it is rather disappointing to see an official body like the ONS reporting that. As I shall explain later their certainly were records as how could we have seen the wages and prices spiral of the late 1970s? What they mean is that they changed the way they record the numbers.

Returning to now the main impact is below.

Growth in average total pay (including bonuses) among employees declined in April to June to negative 1.2%, with annual growth in bonus payments at negative 19.4%; regular pay (excluding bonuses) slowed to negative 0.2%.

So wages are falling and we can add to that a worse picture for June itself.

Single-month growth in average weekly earnings for June 2020 was negative 1.5% for total pay and negative 0.3% for regular pay.

In terms of sectors we are told this.

For the sectors of wholesaling, retailing, hotels and restaurants, and construction, where the highest percentage of employees returned to work from furlough, there is a slight improvement in pay growth for June 2020 compared with April and May; weaker pay growth in some higher-paying sectors negates this at whole economy level.

If we stay with the June figures then as you might well have suspected it is a much better time to be in the public-sector with wages growth of 4.2% than in the private-sector where it was -2.9% on a year before. The worst sector is construction where wages in June were 9% worse than a year ago. It is also true that there are some hints of improvement as the hospitality sector mentioned above went from -7% in May to -4% in June and construction had been -11%.

Real Wages

My usual caveat is that the official inflation measure is woeful due to its use of Imputed Rents and to that we need to add that somewhere around 20% of the inflation data has not been collected due to the pandemic. Indeed the official house price data series was suspended as after all who is interested in that? But what we have is this.

In real terms, pay is now growing at a slower rate than inflation, at negative 2.0% for total pay, the lowest rate since January to March 2012. Regular pay growth in real terms is also negative, at negative 1.0%. The difference between the two measures is because of subdued bonuses, which fell by an average negative 19.4% (in nominal terms) in the three months April to June 2020.

Or if you prefer it in monetary terms.

For June 2020, average regular pay, before tax and other deductions, for employees in Great Britain was estimated at £504 per week in nominal terms. The figure in real terms (constant 2015 prices) fell to £465 per week in June, after reaching £473 per week in December 2019, with pay in real terms back at the same level as it was in December 2018.

As ever they seem to have had amnesia about the total wage series where at 2015 prices we see a weekly wage of £489 in June which compares to £502 for most of the end of last year and the beginning of this. It was last at that level in May 2018. On the positive side we saw a drop in wages but the last three months have been the same ( within £1 in both series). However the negative view is that total wage growth since 2015 is now 1.3%

Employment and Unemployment

The furlough scheme has made these of little use.

A large number of people are estimated to be temporarily away from work, including furloughed workers; approximately 7.5 million in June 2020 with over 3 million of these being away for three months or more.

Unless of course you actually believe this.

the estimated UK unemployment rate for all people was 3.9%; this is largely unchanged on both the year and the quarter

If so perhaps you will let us know the other five.

“Why, sometimes I’ve believed as many as six impossible things before breakfast.” ( Alice In Wonderland)

Comment

The wages numbers tell a story but is it a truthful one? If we stay with it there is a problem highlighted by this from the LSE blog in 2015.

Figure 1 shows that median real wages grew consistently by around 2 per cent per year from 1980 to the early 2000s. There was then something of a slowdown, after which real wages fell dramatically when the economic downturn started in 2008. Since then, real wages of the median worker have fallen by around 8-10 per cent (depending on which measure of inflation is used as a deflator – the consumer price index, CPI, or the housing cost augmented version CPIH). This corresponds to almost a 20 per cent drop relative to the trend in real wage growth from 1980 to the early 2000s.

I have left the inflation measures in as by now all regular readers will be aware that things will be worse using the RPI which is why they have tried and failed to scrap it and are now trying to neuter it. So now the drop is over 25%.

The cautionary note is that the official wages series can be heavily affected by changes in composition or what we are obviously seeing right now. Rather bizarrely we are officially told this is not happening. Meanwhile the series based on taxes ( PAYE) is more optimistic.

Median monthly pay increased by 1.1% in June 2020, compared with the same period of the previous year.

Maybe there is an influence going from average to median but I suspect that it is those not paying taxes it is badly missing here. Such as it is I think we do get something from the improvement for July.

Early estimates for July 2020 indicate that median monthly pay increased by 2.5%, compared with the same period of the previous year.

So overall in terms of real pay it seems we are going to have to wait some time for Maxine Nightingale.

Ooh, and it’s alright and it’s coming along
We gotta get right back to where we started from
Love is good, love can be strong
We gotta get right back to where started from.

The Investing Channel

 

 

 

Germany sees quite a plunge in economic output or GDP

After last night’s rather damp squib from the US Federal Reserve ( they can expand QE within meetings) the Euro area takes center stage today. This is because the leader of its economic pack has brought us up to date on its economy.

WIESBADEN – The gross domestic product (GDP) in the 2nd quarter 2020 compared to the 1st quarter 2020 – adjusted by price, season and calendar – by 10.1%. This was the sharpest decline since the beginning of quarterly GDP calculations for Germany in 1970. It was even more pronounced than during the financial market and economic crisis (-4.7% in the first quarter of 2009).

So in broad terms we have seen a move double that of the credit crunch which was considered to be severe at the time.  The economy had also contracted in the first quarter of this year which we can pick up via the annual comparison.

Economic output also fell year-on-year: GDP in the second quarter of 2020 was 11.7% lower than in the previous year after adjustment for prices (including calendar adjusted). Here, too, there had not been such a sharp decline even in the years of the financial market and economic crisis of 2008/2009: the strongest decline to date was recorded in the second quarter of 2009 at -7.9% compared to the same quarter of the previous year.

So the worst annual comparison of the modern era although by not as large an amount.

We do not get an enormous amount of detail at this preliminary stage but there is some.

As the Federal Statistical Office (Destatis) further reports, both exports and imports of goods and services collapsed massively in the second quarter of 2020, as did private consumer spending and investments in equipment. The state, however, increased its consumer spending during the crisis.

Just like in the film Airplane they chose a bad time to do this…

Beginning with the second quarter of 2020, the Federal Statistical Office published GDP for the first time 30 days after the end of the quarter, around two weeks earlier than before. The fact that the results are more up-to-date requires more estimates than was the case after 45 days.

Although not a complete disaster as they would have been mostly guessing anyway. One matter of note is that 2015 was better than previously though and 2017 worse both by 0.3%. That is not good news for the ECB and the “Euro Boom” in response to its policies.

Unemployment

There has been bad but not unexpected news from the Federal Employment Agency as well this morning.

Unemployment rose by 2.0% compared to the previous month and by 27.9% year-on-year to 2.9 million. Underemployment without short-time work increased by 1.3% compared to the previous month and by 14.6% compared to the previous month. It is 3.7 million The unemployment rate is 6.3%, the underemployment rate is 7.9%.

Now things get a little more awkward as the statistics office has reported this also.

According to the results of the labor force survey, the number of unemployed was 1.97 million in June 2020. That was 39,000 people or 2.1% more than in the previous month of May. Compared to June 2019, the number of unemployed rose by 653,000 (+ 49.2%). The unemployment rate was 4.5% in June 2020.

What we are comparing is registered unemployment or if you prefer those receiving unemployment benefits with those officially counted as unemployed. Whilst we have a difference in timing ( July and then June) the gap is far wider than the change. The International Labour Organisation has some work to do I think…..

Being Paid To Borrow

Regular readers will be aware that this has essentially been the state of play in Germany for some time now. In terms of the benchmark ten-year yield this started in the spring of last year, but the five-year has been negative for nearly the last five years. That trend has recently been picking up again with the ten-year going below -0.5% this week. With the thirty-year at -0.12% then at whatever maturity Germany is paid to borrow,

This represents yet another defeat for the bond vigilantes because even Germany’s fiscal position will take a pounding from the economic decline combined with much higher public spending. But these days a weaker economy tends to lead to even lower bond yields due to expectations of more central bank buying of them.

ECB Monthly Bulletin

After the German numbers above we can only say yes to this.

While incoming economic data, particularly survey results, show initial signs of a recovery, they still point to a historic contraction in euro area output in the second quarter of 2020.

The problem is getting any sort of idea of how quickly things are picking back up. The ECB seems to be looking for clues.

Both the Economic Sentiment Indicator and the PMI display a broad-based rebound across both countries and economic sectors. This pick-up in economic activity is also confirmed by high-frequency indicators such as electricity consumption.

Meanwhile it continues to pump it all up.

The Governing Council will continue its purchases under the pandemic emergency purchase programme (PEPP) with a total envelope of €1,350 billion…………Net purchases under the asset purchase programme (APP) will continue at a monthly pace of €20 billion, together with the purchases under the additional €120 billion temporary envelope until the end of the year……..The Governing Council will also continue to provide ample liquidity through its
refinancing operations. In particular, the latest operation in the third series of targeted
longer-term refinancing operations (TLTRO III) has registered a very high take-up of
funds, supporting bank lending to firms and households.

As to the last bit I can only say indeed! After all who would not want money given to you at -1%?

Comment

We now begin to have more of an idea about how much the economy of Germany has shrunk. Also this is not as some are presenting it because the economy changed gear in 2018 and the trade war of last year applied the brakes. Of course neither were on anything like the scale we have noted today. Whilst the numbers are only a broad brush they are a similar decline to Austria ( -10.7%) which gives things a little more credibility. Markets were a little caught out with both the Euro and the Dax falling as well as bond yields.

Looking ahead we can expect a bounce back in July but how much? The Markit PMI surveys seem to have lost their way as what does this mean?

The recovery in the German economy remained on
track in July, according to the latest ‘flash’ PMI® data
from IHS Markit

Which track?

“July’s PMI registered firmly in growth territory and
well above expectations, in a clear sign that
business conditions are improving across Germany
as activity and demand recover. Furthermore, for
an economy that is steered so much by exports, it
was encouraging to see manufacturers reporting a
notable upturn in sales abroad.”

I am not sure that anyone backing their views with actual trades are convinced by this. Of course things will have picked up as the lockdown ended but there will now be worries about this,

Germany records the highest number of new coronavirus cases in about six weeks ( Bloomberg)

So the recovery seems set to have ebbs and flows. Accordingly I have no idea how places can predict such strong bounce backs in economic activity in 2021 as we still are very unsure about 2020. I wish anyone ill with this virus a speedy recovery but I suspect that economies will take quite some time.

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

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

Wages

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

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

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

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

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

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

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

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

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

Did Furlough Impact This?

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

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

This pulled pay lower.

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

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

Real Wages

Here are the official numbers.

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

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

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

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

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

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

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

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

pay at @GoldmanSachs  up by almost a fifth in H1

Time to remind ourselves of this one more time.

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

Employment

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

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

Indeed even this is an understatement it would seem

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

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

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

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

Comment

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

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

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

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

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

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

The Investing Channel

 

 

 

 

 

 

The Euro area unemployment rate is much higher than the 7.4% reported today

A clear feature of the economic landscape post the Covid-19 pandemic is mass unemployment. We should firstly note that this is and will continue to create quite a bit of suffering and angst. Also that all the easing policies of the central banks over the past decade or so were supposed to avoid this sort of thing. But if the system was a rubber band it had been stretched towards breaking point and now all they can do is pump it all up even more. But for our purposes there is another issue which is that we have little idea of either how much unemployment there is or how long it will last. Let me illustrate by looking at the numbers just release by Italy.

The Italian Job

As you might expect employment fell in May.

On a monthly basis, the decline of employment (-0.4%, -84 thousand) concerned more women ( 0.7%, 65 thousand) than men (-0.1%, -19 thousand), and brought the employment rate to 57.6% (-0.2 p.p.)…….With respect to the previous quarter, in the period March – May 2020, employment considerably decreased (-1.6%, 381 thousand) for both genders.

 

Also unemployment rose.

In the last month, also unemployed people grew (+18.9%, +307 thousand) more among women (+31.3%, +227 thousand) than men (+8.8%, +80 thousand). The unemployment rate rose to 7.8% (+1.2 percentage points) and the youth rate increased to 23.5% (+2.0 p.p.).

Now the problems begin. Firstly I recall that last time around we were told the unemployment rate was 6.3% which has seen a substantial revision to 6.6%. There my sympathy is with the statisticians at a difficult time. But for the next bit we have to suspend credulity.

In the last three months, also the number of unemployed persons decreased (-22.3%, -533 thousand), while a growth among inactive people aged 15-64 years was registered (+6.6%, +880 thousand).

If we look further back we just compound the issue.

On a yearly basis, the decrease of employed people was accompanied by a fall of unemployed persons (-25.7%, -669 thousand) and a growth of inactive people aged 15-64 (+8.7%, +1 million 140 thousand).

As I pointed out last month the issue is how unemployment is defined.

Unemployed persons: comprise persons aged 15-74 who:
were actively seeking work, i.e. had carried out activities in the four week period ending with the reference week
to seek paid employment or self-employment and were available to start working before the end of the two
weeks following the reference week;

The definition fails when you have a lockdown as some cannot go to work and others quite reasonably think that there is no point. If we assume that the rise in activity is all a type of hidden unemployment then we get an unemployment rate of 12.4% in Italy. Our estimate will be far from perfect so let us say we think it has risen from ~11% last in April to more like 12% in May.

An even grimmer situation is shown by youth unemployment. The official reading is bad enough.

the youth rate increased to 23.5% (+2.0 p.p.).

But if we apply the same methodology we get to a rather chilling 46.3%. The inactivity category here is huge at 4.6 million which I hope is pretty much students. I have to confess that I am reminded of the Yes Prime Minister quote from the 1980s that education was mostly extended to reduce the unemployment numbers. Anyway it is a blunt number but frankly will be much nearer than the official one. Also there will be many young Italians who have had little hope of a job post credit crunch as it was and it just got worse.

What we do learn is how few people are surveyed for these numbers.

The number of interviewed households for May 2020 is about 17,000 (almost equal to 35,500 individuals) and is
approximately 10% lower than the average number of interviews used for the production of estimates related to a
four-weeks month.

Spain

If we switch to the Ministry of Labour we get a barrage of numbers.

Unemployment is reduced in all sectors except agriculture and among claimants “without previous employment”
There are fewer unemployed registered in ten autonomous communities
In June 308,985 more contracts were signed than in the previous month
Almost six million people received SEPE benefits in May.

These numbers look both more useful and realistic. Things started to get better last month with around 309,000 new jobs but the Furlough scheme count in May of 6 million gives a perspective. Also unemployment edged higher.

The registered unemployment in the offices of the State Public Employment Service (SEPE) has increased by 5,107 people compared to the previous month. This represents an increase of 0.1%, which deepens the trend of slowing down the growth rate of unemployment that began in May.

So we end up with this.

The total number of unemployed persons registered in the SEPE offices amount to 3,862,883.

There is an irony in using registered unemployment numbers as they fell into disrepute due to the way they can be manipulated and fiddled. But right now they are doing better than the official series. El Pais summarises it like this.

The total number of jobseekers in Spain has risen to 3.86 million, the highest figure registered since May 2016……The rise in unemployment for June is the first increase seen since 2008, just months before the fall of Lehman Brothers and the year of the financial crisis. The increase in contributors to the Social Security system for the month is also the smallest since 2015.

So we see that there are also still around 2.1 million people on the furlough scheme. In total these benefits were paid out.

In May, the SEPE paid 5,526 million euros in benefits, of which 3,318 million were dedicated to paying ERTE benefits and 2,208 million to unemployment benefits, both at the contributory and assistance level.

If we use these numbers are plug them into the official unemployment series we end up with an unemployment rate of 16.8%.

Euro Area

This morning’s official release tells us this.

In May 2020, a third month marked by COVID-19 containment measures in most Member States, the euro area seasonally-adjusted unemployment rate was 7.4%, up from 7.3% in April 2020……..Eurostat estimates that 14.366 million men and women in the EU, of whom 12.146 million in the euro area, were unemployed in May 2020. Compared with April 2020, the number of persons unemployed increased by 253 000 in the EU and by 159 000 in the euro area.

Unfortunately we do not have an update on inactivity so we can have a go at getting a better picture. We are promised more but not until next week.

To capture in full the unprecedented labour market situation triggered by the COVID-19 outbreak, the data on
unemployment will be complemented by additional indicators, e.g. on employment, underemployment and potential
additional labour force participants, when the LFS quarterly data for 2020 are published.

Comment

As you have seen earlier this is a “Houston we have a problem moment” for unemployment data as it rigorously calculates the numbers on the wrong football pitch. It creates problems highlighted by this tweet from Silvia Amaro of CNBC.

#unemployment in the euro zone came in at 7.4% in May. At the height of the debt crisis it reached 12.1%. #COVIDー19

That creates the impression things are much better now when in fact they may well be worse. Without the furlough schemes they certainly would be. What we fo not know is how long it will last?