UK wage growth picks up but so does unemployment

Today brings us up to date or rather more up to date on the official average earnings or wages data for the UK. So far it has not really picked up the optimism shown by private-sector surveys like this on Monday from Markit.

In particular, latest data indicated one of the fastest
rises in income from employment in the nine-year
survey history (exceeded only by the upturn
reported in July 2016).

That looks good until we note that those nine years have been ones of relative struggle especially for real wages. Also if we look back to the summer of 2016 for the apparent wages boom we see that on the official rolling three-month measure wages growth peaked at 2.7% as autumn turned to winter. So not a great amount to write home about.

Also at least some of the pick-up was due to the rise in the National Living Wage which has welcome features but of course wage rise by diktat is different to wage rise by choice.

People aged 25-34 were the most likely to report an
increase in their earnings. This provides a signal
that pay rises ahead of changes to the National
Living Wage threshold had helped to boost the
income from employment index in March.

However the Markit summary was very upbeat.

The strength of the survey’s employment figures in
March is an advance signal that wage pressures
are starting to build. While higher salary payments
will help offset sharply rising living costs faced by
consumers, it also adds to the likelihood of
additional interest rate rises in 2018.

So in their view the Bank of England is targeting wage rises rather than the CPI measure of inflation it claims that it is. In which case no wonder Bank Rate is still at its “emergency” 0.5% level. This morning has seen some support for this in the markets as short sterling futures ( an old stomping ground of mine) have been falling as for example the June 2019 contract has fallen 0.05 to 98.74. Also open interest has done this.

the ICE Three Month Short Sterling Futures contract achieved two consecutive open interest records of 3,896,252 contracts on 16 March 2018 and 3,867,976 contracts on 15 March 2018. The previous open interest record was 3,801,867 contracts set in July 2007.

So people have placed their bets so to speak and as this contracts run ahead they are forecasting a Bank Rate of 1% in a year and a bit. Of course if they were always right life would be a lot simpler than it is.


A possible troubling consequence of this has popped up the news this morning. From the Financial Times.

Trouble on the UK high street: Carpetright, Mothercare and Moss Bros all report strains

As retail is a low payer in relative terms are the rises in the NLW something which has put it under further strain? Of course there are plenty of other factors but in a complicated world something good could also be the straw that broke the camel’s back.


Intriguingly the Markit survey was bullish on this front too.

At the same time, UK households are the least
gloomy about their job security for at least nine
years, which provides a further indication of tight
domestic labour market conditions.

This of course contradicts the last set of official data which hinted at a turn in the long-running improvement in employment. Ironically the official data with its swing in employment growth will have helped the recent renaissance in productivity growth which you will recall started more of less about when the Office for Budget Responsibility downgraded forecasts for it.

NHS pay rise

There has been quite a bit of speculation on this front today with the BBC reporting this.

More than a million NHS staff, including nurses, porters and paramedics, could expect average pay increases of over 6% over three years, the BBC understands.

The deal, expected to be formally agreed by unions and ministers later, could cost as much as £4bn.

If approved, workers in England could see their pay increase almost immediately.

The deal is tiered – with the lowest paid getting the biggest annual rises.

Although as we have noted before the position is much more complex than it may look.

Last year, half of staff received rises worth between 3% and 4% on top of the 1% annual pay rise.

Public sector pay seems to have been rising anyway as the 1.4% of the end of 2016 gets replaced with the 2% of the end of 2017.

Today’s data

There was finally some better news for wages growth which backed up the Markit survey.

Latest estimates show that average weekly earnings for employees in Great Britain in nominal terms (that is, not adjusted for price inflation) increased by 2.6% excluding bonuses, and by 2.8% including bonuses, compared with a year earlier.

This means that the official view on the real wage picture is this although I have to object to the way that an inflation index depending on fantasy numbers ( Imputed Rent) or CPIH is used here.

Between November 2016 to January 2017 and November 2017 to January 2018, in real terms (that is, adjusted for consumer price inflation), regular pay for employees in Great Britain fell by 0.2% while total pay for employees in Great Britain was unchanged.

If we look back we see that past months have been revised higher so that the last report was 2.7% and not the 2.5% reported back then. So we see that real wages look set to move back into positive territory and may already have done so using the CPI style inflation measures but not the RPI measure the establishment so dislikes.

In addition the employment situation continued to improve.

There were 32.25 million people in work, 168,000 more than for August to October 2017 and 402,000 more than for a year earlier.The employment rate (the proportion of people aged from 16 to 64 who were in work) was 75.3%, higher than for a year earlier (74.6%) and the joint highest since comparable records began in 1971.

Whereas unemployment provided first good and then not so good news.

The unemployment rate (the proportion of those in work plus those unemployed, that were unemployed) was 4.3%, down from 4.7% for a year earlier and the joint lowest since 1975.

However the labour force must have grown as we are also told this.

There were 1.45 million unemployed people (people not in work but seeking and available to work), 24,000 more than for August to October 2017 but 127,000 fewer than for a year earlier.


Let me type the next bit using a part of my keyboard that is used so little it is covered with dust. There may be some evidence that the Bank of England view on wages may be at least partially correct. Care is needed as you see if the past had not been revised higher then January would have looked really good whereas now the overall sequence is a little better. Thin pickings maybe but when you record is as bad as theirs any port in a storm is welcome.

Also we see that employment has continued to rise as we observe a double whammy of better news. Ironically I guess that may bring back a flicker of productivity worries as we mull a falling unemployment rate but rising unemployment. Maybe the short sterling futures market was ahead of the game although of course it is relying on an unreliable boyfriend to back up his promises.

Meanwhile let me give you my regular reminder that the average earnings numbers ignore firms of less than 20 employees which means that for it the 4.78 million self-employed disappear into a black hole.





Portugal hopes to end its lost decade later this year

It is time for us once again to head south and take a look at what is going on in the Portuguese economy? The opening salvo is that 2017 was the best year seen for some time. From Portugal Statistics.

In 2017, the Portuguese Gross Domestic Product (GDP) increased by 2.7% in real terms, 1.1 percentage points higher than the rate of change registered in 2016, reaching, in nominal terms, around 193 billion euros. In nominal terms, GDP increased 4.1% (3.2 in 2016),

So both economic growth and an acceleration in it from 2016. In essence the performance was an internal thing.

The contribution of domestic demand to GDP growth increased to 2.9 percentage points (1.6 percentage points in 2016), mainly due to the acceleration of Investment. Net external demand registered a negative contribution of 0.2 percentage points (null in 2016),  with Imports of Goods and Services accelerating slightly more intensely than Exports of Goods and Services.

It is hard not to feel a slight chill down the spine at the latter section as it has led Portugal to go cap in hand to the IMF ( International Monetary Fund) somewhat regularly over the past decades. But to be fair the last quarter was better on this front.

The contribution of net external demand to GDP quarter-on-quarter growth rate shifted from negative to positive, due to the significantly higher acceleration of Exports of Goods and Services than of Imports of Goods and Services.

Indeed the last quarter was good all round.

Comparing with the previous quarter, GDP increased by
0.7% in real terms.

Also whilst it fell from the heady peaks of earlier in the year investment had a good year.

Investment, when compared with the same quarter of
2016, increased by 5.9% in volume in the last quarter of
2017, a 4.4 percentage points deceleration from the
previous quarter.

This was particularly welcome as it needed it as I pointed out on the 6th of July last year the economic depression Portugal has been through saw investment collapse.

 A fair proportion of this is the fall in investment because whilst it has grown by 5.5% over the past year the level in the latest quarter of 7.7 billion Euros was still a long way below the 10.9 billion Euros of the second quarter of 2008.


The national accounts brought a hopeful sign on this front too.

In the fourth quarter of 2017, seasonally adjusted
employment registered a year-on-year rate of change of
3.2%, (3.1% in the previous quarter)

Of course this does not have to mean unemployment fell but in this instance as we learnt at the end of last month the news is good.

The December 2017 unemployment rate was 8.0%, down by 0.1 percentage points (p.p.) from the previous month’s
level, by 0.5 p.p. from three months before and by 2.2% from the same month of 2016…………The provisional unemployment rate estimate for January 2018 was 7.9%.

This means that the statistics office was able to point this out.

only going back to July 2004 it
is possible to find a rate lower than that.

The one area that continues to be an issue is this one.

The youth unemployment rate stood at 22.2% and
remained unchanged from the month before,

Is Portugal ending up with something of a core youth unemployment problem?

The latest Eurostat handbook raises another issue as it has a map of employment rate changes from 2006 to 2016. For Portugal this was a lost decade in this sense as in all areas apart from Lisbon (+1.1%) it fell from between 2.5% and 3,8%. Rather curiously if we divert across the border to a country now considered an economic success Spain it fell in all regions including by 7.2% in Andalucia. So whilst both countries will have improved in 2017 we get a hint of a size of the combined credit crunch and Euro area crises.

Is Portugal’s Lost Decade Over?

No it still has a little way to go and the emphasis below is mine. From the Bank of Portugal economic review.

economic activity will maintain
a growth profile over the projection horizon,
albeit at a gradually slower pace (2.3%, 1.9%
and 1.7% in 2018, 2019 and 2020 respectively)
. At the end of the projection horizon,
GDP will stand approximately 4% above the level
seen prior to the international financial crisis.

So it will be back to the pre credit crunch peak around the autumn. We will have to see as the Bank of Portugal got 2016 wrong as I was already pointing out last July that the first half of 2016 had the economic growth it thought would arrive in the whole year. Maybe its troubles like so many establishment around the world is the way it is wedded to something which keeps failing.

Projected growth rates are above the average
estimates of potential growth of the Portuguese
economy and will translate into a positive output
gap in coming years.

Actually that sentence begs some other questions so let me add for newer readers that the economic history of Portugal is that it struggles to grow at more than 1% per annum on any sustained basis. In fact compared to its peers in the Euro area 2017 was a rare year as this below shows.

interrupting a long period of negative annual
average differentials observed from 2000
to 2016 (only excluding 2009).

This is unlikely to be helped by this where like in so many countries we see good news with a not so good kicker.

The employment growth in the most recent
years, which was fast when compared with activity
growth, has resulted in a decline in labour
productivity since 2014, a trend that will continue
into 2017. ( I presume they mean 2018).

House Prices

It would appear that there is indeed something going on here. From Portugal Statistics.

In the third quarter of 2017, the House Price Index (HPI) increased 10.4% in relation to the same period of 2016 (8.0% in the previous quarter). This rate of change, the highest ever recorded for the series starting in 2009, was essentially determined by the price behaviour of existing dwellings, which increased 11.5% in relation to the same quarter of 2016………….The HPI increased 3.5% between the second and third quarters of 2017

The peak of this was highlighted by The Portugal News last November.

Portugal’s most expensive neighbourhood is, perhaps unsurprisingly, the heart of Lisbon, where buying a house along the Avenida da Liberdade or Marquês de Pombal costs around €3,294 per square metre; up 46.1 percent in 12 months.

Time for the Outhere Brothers again.

I say boom boom boom let me hear u say wayo
I say boom boom boom now everybody say wayo

The banks

Finally some good news for the troubled Portuguese banking sector as their assets ( mortgages) will start to look much better as house prices rise. If we look at Novo Banco this may help with what Moodys calls a “very large stock of problematic assets” which the Portuguese taxpayer is helping with a recapitalisation of  3.9 billion Euros. Yet there are still problems as this from the Financial Times highlights.

Portuguese authorities last year launched a criminal investigation into the sale of €64m of Novo Banco bonds by a Portuguese insurance firm to Pimco that occurred at the end of 2015. A week later, the value of the bonds sold to Pimco were in effect wiped out by the country’s central bank.

This is an issue that brings no credit to Portugal as Novo Banco as the name implies was supposed to be a clean bank that was supposed to be sold off quickly.


So we have welcome economic news but as ever in line with economics being described as the “dismal science” we move to asking can it last? On that subject we need to note that an official interest-rate which is -0.4% and ongoing QE is worry some. Also Portugal receives quite a direct boost in its public finances from the QE as the flow of 489 million Euros  of purchases of its government bonds in February meaning the total is now over 32 billion means it has a ten-year yield of under 2%. Not bad when you have a national debt to GDP ratio of 126.2%.

To the question what happens when the stimulus stops? We find ourselves mulling the way that Portugal has under performed its Euro area peers or its demographics which were already poor before some of its educated youth departed in response to the lost decade as this from the Bank of Portugal makes clear.

The population’s ageing trend partly results from
the sharp decrease in fertility in the 1970s and

So whilst some may claim this as a triumph for the “internal competitiveness” or don’t leave the Euro model 2017 was in fact only a tactical victory albeit a welcome one in a long campaign. Should some of the recent relative monetary and consumer confidence weakness persist we could see a slowing of Euro area economic growth in the summer/autumn just as the ECB is supposed to be ending its QE program and considering ending negative interest-rates. How would that work?





The UK has seen no real wage growth since 2005

Today we find ourselves addressing two parts of the UK economic situation as for some reason we get official data on the public finances and the labour market which of course means wages. The latter subject is something the Bank of England has assured us is about to pick up. Here is the report from its Business Agents from last week.

The survey indicated that companies expected an average pay settlement rate of 3.1% in 2018, compared with 2.6% in 2017 . The 2017 outturn was higher than the 2.2% that had
been expected in last year’s survey, reflecting larger
settlements across a broad range of sectors. The increases in pay settlements in 2018 are also expected to be broad-based,with only the construction sector expecting pay settlements in 2018 to be the same as in 2017.

This would be good news if true because as the inflationary impact of the lower UK Pound £ fades and in fact is replaced by a higher level against the US Dollar (approximately 15 cents on a year ago) we can hope for an end to falling real wages and some rises. It would be nice to see wages rise as well as inflation dipping.

Although the rises come from something which is both good and bad.

The biggest expected increase in pay settlements is seen in
consumer services. That is because many firms in this sector will have to increase pay to meet the National Living Wage (NLW). Companies also reported an increased tendency to pay above the NLW, due to competitive pressures.

Whilst it is welcome that the lower paid get a boost this is not the same as businesses choosing to pay more because conditions are good so we will need to see how this plays out. Some responses were not what might be hoped.

However, many firms were planning to limit management pay increases to 1%–2% in order to hold down their overall pay settlement.

Today’s data

There was little sign of the Bank’s forecasted improvement in the numbers.

Between October to December 2016 and October to December 2017, in nominal terms, total pay increased by 2.5%, unchanged compared with the growth rate between September to November 2016 and September to November 2017…….average total pay (including bonuses) for employees in Great Britain was £512 per week before tax and other deductions from pay, up from £498 per week for a year earlier

There was an increase in regular pay from 2.3% to 2.5% which many places are reporting as a rise in wages but overall what was given in regular pay increases was taken back from bonuses. It is hard to know what to make of the single month figures for December which showed a rise in private-sector wage growth to 3% which might be evidence for the Bank of England case until we notice that it was 3.1% in September and 3.2% in June in an erratic series.

As for real wages we are told this.

Comparing the three months to December 2017 with the same period in 2016, real AWE (total pay) fell by 0.3%, 0.1 percentage points more than the three months to November 2017.

Those who prefer their inflation index not to have made up or Imputed Rents in it will think that real wages have fallen by more like 0.5/6% and those who follow the Retail Price Index more like 1.5%. If you want a longer-term perspective there is plenty of food for thought here.

Looking at longer-term movements, average total pay for employees in Great Britain in nominal terms increased from £376 per week in January 2005 to £512 per week in December 2017; an increase of 36.1%. Over the same period, the Consumer Prices Index including owner occupiers’ housing costs (CPIH) increased by 34.1%.

Getting quite tight back to 2005 now isn’t it? In that time people have completed school seen children grow up and so on. Indeed if you use what was until recently the inflation measure favoured by the UK establishment ( CPI) your wages have not risen at all and if in spite of the barrage of official propaganda against it you still like the RPI it tells you real wages have fallen by 11%.

Those differences are why I spend so much time and effort on inflation measures as the impact is material and official moves always seem to have the same (lower) result whereas rel life is to say the least much more nuanced.


There was good news on this front announced this morning.

Output per hour – Office for National Statistics’ (ONS’s) main measure of labour productivity – increased by 0.8% in Quarter 4 (Oct to Dec) 2017. This follows a 0.9% increase in the previous quarter (July to Sept) 2017 .

Well good news for nearly everyone.

The main reason for lowering our GDP forecast since March is a significant downward revision to potential productivity growth, reflecting a reassessment of the post-crisis weakness and the hypotheses to explain it.

Yes that was the Office for Budget Responsibility or OBR in another stunning success for my first rule of OBR club. They are a reverse indicator of nearly Dennis Gartman style proportions.

Speaking of seers one may have had a wry smile earlier at this.

Oil, coal, gas and non-fossil fuels will each account for a quarter of the energy mix by 2040, leading to increased competition across fuels, says BP’s chief economist Spencer Dale. ( h/t @sarasjolin )

Yes the same Spencer Dale who could not see beyond the end of his nose when Chief Economist at the Bank of England can now see all the way to 2040 it is claimed. We get some perspective by the fact he went to BP as presumably he was not considered good enough for the OBR which is a terrifying thought if you think about it.

There is a kicker to the good productivity news and it is something that I have pointed out before. There is something of an admittal here.

Growth in Quarter 4 was the result of a 0.5% increase in gross value added (GVA) (using the preliminary gross domestic product (GDP) estimate) accompanied by a 0.3% fall in total hours worked (using the latest Labour Force Survey data).

So some of it was related to this.

There were 1.47 million unemployed people (people not in work but seeking and available to work), 46,000 more than for July to September 2017 but 123,000 fewer than for a year earlier.

Some of the employment growth has come from the quantity numbers from the labour market not being quite so good. Some of the quantity surge which has seen record employment and plummets in unemployment depressed measured productivity and now a flicker the other way has raised it.


The opening salvo today is for those who think things are not as good as we are assured which is that since 2005 we have had very little ( CPIH), no ( CPI) or -11% (RPI) real wage growth in the UK. We should gain ground later this year but for now we continue slip-sliding away. If we had known this back then more of us would have been singing along with Natalie Imbruglia.

I shiver, I shiver,
Cos I shiver, I just break up when I’m near you it all gets out of hand
Yes I shiver I get bent up there’s no way that I know you’ll understand

Meanwhile we see productivity rise but wonder if it is because there is less work in terms of hours worked and maybe employment? These days things are rarely clear-cut as with GDP growth and productivity picking up in quarterly terms things look good. But on the side of the coin there has been a nudge higher in unemployment and this.

Self-assessed Income Tax and Capital Gains Tax receipts (combined) were £18.4 billion in January 2018, which is £0.9 billion less than in January 2017.

Confused? You will be! As we were told by the comedy series Soap. Also I have to confess that this troubles me.

and a share buyback of up to £1 billion ( Lloyds bank)

How quickly the theme changes from needs more capital to less.



The economy of Italy has yet to awaken from its “Girlfriend in a coma” past

The subject of Italy and its economy has been a regular feature on here as we have observed not only its troubled path in the credit crunch era but also they way that has struggled during its membership of the Euro. This will no doubt be an issue in next month’s election but the present period is one which should be a better phase for Italy. Firstly the Euro area economy is doing well overall and that should help the economy via improved exports.

Seasonally adjusted GDP rose by 0.6% in both the euro area (EA19) and in the EU28 during the fourth quarter of
2017, compared with the previous quarter……..Compared with the same quarter of the previous year, seasonally adjusted GDP rose by 2.7% in the euro area and
by 2.6% in the EU28 in the fourth quarter of 2017…….Over the whole year 2017, GDP grew by 2.5% in both zones.

The impact on the economy of Italy

If we switch now to the Italian economy we find that there has been a boost to the economy from the better economic environment. From the monthly economic report.

Italian exports keep increasing with a positive trend following world trade expansion…….Over the period September-November, foreign trade kept a positive trend
driven by the exports (+2.9%), while the imports increased at a lower pace (+0.6%).

However the breakdown was not as might be expected.

Sales to the non-EU area (+4.6%) contributed positively to the favorable trend in exports and more than the sales to the EU area (+1.5%). In 2017, trade with non-EU countries increased both exports (+8.2%) and imports (+10.8%).

So the export-led growth is stronger outside the Euro area than in it which is not what we might expect as we observe the way that the Euro has been strong as a currency. Effects in this area can be lagged so it is possible via factors such as the J-Curve that the new higher phase for the Euro has yet to kick in in terms of its impact on trade, so we will have to watch this space.


There was some good news on this front in December as the previous analysis had been this.

Taking the average values of September-November, shows that production decreased compared to the previous quarter (-0.2%, ). In the same period all the main industrial groupings recorded a decrease except durable consumer goods (+2.7% compared to the previous quarter).

As you can see that is not what might have been expected but last weeks’ data for December was more upbeat.

In December 2017 the seasonally adjusted industrial production index increased by 1.6% compared with the previous month. The percentage change of the average of the last three months with respect to the previous three months was +0.8.

This meant that the position for the year overall looked much better than the downbeat assessment above.

in the period January-December 2017 the percentage change was +3.0 compared with the same period of

If we move to the outlook for 2018 then the Markit business survey or PMI could not be much more upbeat.

Italy’s manufacturing sector enjoyed a strong start
to 2018, registering the highest growth in output
since early 2011 and one of the greatest rises in
new orders of the past 18 years.

In addition domestic demand was seen adding to the party.

but January data pointed to a growing contribution from within Italy itself.

This leads to hopes for improvement in one of the Achilles heels of the Italian economy.

The response from many manufacturers was to
bolster employment numbers, and January’s survey
indicated the second-strongest rise of employment
in the survey history.

Unemployment and the labour market

At first glance the latest data does not look entirely impressive.

In December 2017, 23.067 million persons were employed, -0.3% over November 2017. Unemployed were
2.791 million, -1.7% over the previous month.

There is a welcome fall in unemployment but employment which these days is often a leading indicator for the economy has dipped too.

Employment rate was 58.0%, -0.2 percentage points over the previous month, unemployment rate was
10.8% -0.1 percentage points over November 2017 and inactivity rate was 34.8%, +0.3 percentage points in
a month.

However if we look back we see that over the past year 173,000 more Italians have been employed and the level of unemployment has fallen by 273,000.  What we are still waiting for however is a clear drop in the unemployment rate which has been stuck around 11% for a while. We are told it has dropped to 10.8% but there has been a recent habit of revising the rate back up to 11% at a later date meaning we have been told more than a few times that it has fallen below it. Sadly much of the unemployment is concentrated at the younger end of the age spectrum.

Youth unemployment rate (aged 15-24) was 32.2%, -0.2 percentage points over the previous month.

So better than Greece but isn’t pretty much everywhere as we again wonder how many of these have never had a job and even more concerning, how many never will?

Sometimes we are told that higher unemployment rates are a consequence of better wages. But is we look at wages growth there does not seem to be much going on here.

The labor market outlook is characterized by the wage
moderation: in 2017 both the index of contractual wages per employee and that of hourly wages increased by +0.6% y-o-y.

On a nominal level that is a fair bit below even the UK but of course the main issue is in real or inflation adjusted terms.

In January 2018, according to preliminary estimates, the Italian consumer price index for the whole nation (NIC) increased by 0.2% on monthly basis and by 0.8% compared with January 2017 (it was +0.9% in December 2017).

So there was in fact a small fall in real wages in 2017 which we need to file away on two fronts. Firstly there is the apparent fact that better economic conditions in Italy are not being accompanied by real wage growth and in fact a small fall. Secondly we need to add that rather familiar message to our global database.

The banks

This is a long running story of how the banking sector carried on pretty much regardless after the credit crunch and built up a large store of non-performing assets or if you prefer bad loans. This has meant that many Italian banks are handicapped in terms of lending to help the economy and some have become zombified. From Bloomberg earlier.

Even after making reductions last year, Italian banks are still weighed down by more than 270 billion euros ($330 billion) of non-performing loans. Struggling households account for almost a fifth of that total, according to the Bank of Italy.

It is hard not to have a wry smile at a proposed solution.

The Bank of Italy says an improvement in the country’s real estate market is helping to reduce the risks for banks.

Whether that will do much good for what has become the symbol of the problem I doubt but here is the new cleaner bailed out Monte Paschi. From Bloomberg on Monday.

The bank, which is cutting about a fifth of its workforce, eliminating branches and plans to sell 28.6 billion euros of bad loans by 2021, posted 501.6 million-euro net loss in the last three months of the year.

How is the bailout going?

The shares were down 2.8 percent at 3.72 euros as of 9:55 a.m. The stock, which returned to trading Oct. 25 after an 10-month suspension, is now valued more than 43 percent below the 6.49 euros apiece paid by Italy for the rescue.

This morning it is 3.44 Euros so the beat goes on especially as we note that pre credit crunch and the various bailouts the equivalent price peak was over 8800.


This issue continues to be ongoing.

The population at 1st January 2018 is estimated to be 60,494,000; the decrease on the previous year was
around 100,000 units (-1.6 per thousand).

Driven by this.

The number of live births dropped to 464 thousand, 2% less than in 2016 and new minimun level ever.

We have seen on the news so often that there is considerable migration to Italy and if we look into the detail we see that not only is it so there is something tucked away in it.

The net international migration in 2017 amounted to +184 thousand, recording a consistent increase on the
previous year (+40 thousand).

Yet Italians themselves continued to leave in net terms as 45,000 returned but 112,000 left which is a little surprising in the circumstances. As to the demographics well here they are.

At 1 January 2018, 22.6% of the population was aged 65 or over, 64.1% was aged between 15 and 64, while
only 13.4% was under 15 years of age. The mean age of the population exceeded 45 years.

The theme is that the natural change has got worse over the past decade rising from pretty much zero to the 183,000 of 2017 but contrary to the news bulletins net immigration is lower as it approached half a million in 2007.


This morning has brought news which will be very familiar to readers of my work which is an Italian economy which seems to struggle to grow at more than around 1% per annum for any sustained period.

In the fourth quarter of 2017 the seasonally and calendar adjusted, chained volume measure of Gross
Domestic Product (GDP) increased by 0.3 per cent with respect to the third quarter of 2017 and by 1.6 per
cent in comparison with the fourth quarter of 2016.

As we note a negative official interest-rate ( -0.4%) and a large amount of balance sheet expansion from the European Central Bank the monetary taps could not be much more open. Italy’s government in particular benefits directly by being able to borrow very cheaply ( ten-year yield 2.05%) when you consider it has a national debt to annual GDP ratio of 134.1%. Thanks Mario!

Thus we return on Valentines Day to the “Girlfriend in a Coma” theme of Bill Emmott which is a shame as Italy is a lovely country. Can it change? Let us hope so and maybe the undeclared economy can be brought to task. Meanwhile if you want to take the Matrix style blue pill here is Bloomberg.

ITALY: GDP expanded by 0.3% in 4Q, a bit less than expected. Still, 2017 was the best growth year (+1.5%) since 2010. Shows how broad-based the euro-area recovery has become. A rising tide lifts all boats





Is Greece growing more quickly than the UK?

Today we return to a long running and grim saga which is the story of Greece and its economic crisis. However Bloomberg has put a new spin on it as follows.

Greece is growing faster than Britain and is outperforming it in financial markets.

Okay so let us take a deeper look at what they are saying. Matthew Winkler who is the Editor-in-Chief Emeritus of Bloomberg News, whatever that means, goes on to tell us this.

In a role reversal not even the most prescient dared to anticipate, Greece is growing faster than the U.K. and outperforming it in financial markets. ……..Now that Europe is leading the developed world in growth, productivity and job creation after the euro gained 14.2 percent last year — the most among 16 major currencies and the strongest appreciation since 2003 — Greece is the biggest beneficiary and Britain is the new sick man of Europe.

This is really quite extraordinary stuff isn’t it? Let me just mark that the author seems to be looking entirely through the prism of financial markets and look at what else he has to say.

In the bond market, Greece is the king of total return (income plus appreciation), handing investors 60 percent since the Brexit vote. U.K. debt securities lost 3 percent, and similar bonds sold by euro-zone countries gained 7 percent during the same period, according to the Bloomberg Barclays indexes measured in dollars. Since March 1, 2012, when the crisis of confidence over Greece was at its peak and its debt was trading at 30 cents on the dollar, Greek bonds have returned 429 percent, dwarfing the 19 percent for euro bonds and 10 percent for the U.K., Bloomberg data show.

Also money is flowing into the Greek stock market.

ETF flows to Europe gained 15 percent and 13 percent to the U.K. during the same period. The Global X MSCI Greece ETF, the largest U.S.-based exchange-traded fund investing in Greek companies, is benefiting from a 35 percent increase in net inflows since the 2016 Brexit vote.

Finally we do actually get something based on the real economy.

The same analysts also forecast that Greece will overtake Britain in GDP growth. They expect Greece to see its GDP rise 2.15 percent this year and 2.2 percent in 2019 as the U.K. grows 1.4 percent and 1.5 percent.

Many of you will have spotted that the Greece is growing faster than the UK has suddenly morphed into people forecasting it will grow quicker than it! This poses a particular problem where Greece is concerned and can be illustrated by the year 2012. Back then we had been assured by the Troika that the Greek economy would grow by 2% on its way to an economic recovery and the UK was back then enmeshed in “triple-dip” fears. Actually there was no UK triple dip and the Greek economy shrank by around 7% on the year before.

GDP growth

According to the Greek statistics office these are the latest figures.

The available seasonally adjusted data
indicate that in the 3rd quarter of 2017 the Gross Domestic
Product (GDP) in volume terms increased by 0.3% in comparison with the 2nd quarter of 2017, while in comparison with the 3rd quarter of 2016, it increased by 1.3%.

Thus we see that if we move from forecasts and rhetoric to reality Greece has some economic growth which we should welcome but not only is that slower than the UK in context it is really poor if we look at its record. After the severe economic depression it has been through the economy should be rebounding rather than edging forwards. I have written many times that it should be seeing sharp “V Shaped” growth rather than this “L Shaped” effort.

If we look back the GDP at market prices peaked in Greece in 2008 at 231.9 billion Euros but in 2016 it was only 175.9 billion giving a decline of the order of 24% or 56 billion Euros. That is why it should be racing forwards now to recover at least part of the lost ground but sadly as I have predicted many times it is not. Even if the forecasts presented as a triumph above come true it will be a long long time before Greece gets back to 2008 levels. Whereas the UK economy is a bit under 11% larger and to be frank we think that has been rather a poor period.

Job creation

You may note that there was a shift to Europe leading the world on job creation as opposed to Greece so let us investigate the numbers.

The number of employed persons increased by 94,071 persons compared with November 2016 (a 2.6% rate of increase) and decreased by 9,659 persons compared with October 2017 (a 0.3% rate of decrease).

I am pleased to see that the trend is for higher employment albeit there has been a monthly dip. Actually if we look further the last 3 months have seen a fall so let us hope we are not seeing another false dawn. Further perspective is provided by these numbers.

The seasonally adjusted unemployment rate in November 2017 was 20.9% compared to the upward revised 23.3% in November 2016 and the upward revised 20.9% in October 2017. The number of employed in November 2017 amounted to 3,761,452 persons. The number of unemployed amounted to 995,899 while the number of inactive to 3,242,383.

The first issue is the level of unemployment which has improved but still has the power to shock due to its level. The largest shock comes from a youth unemployment rate of 43.7% which is better than it was but leaves us mulling a lost generation as some seem set to be out of work for years to come and maybe for good. Or perhaps as Richard Hell and the Voidoids put it.

I belong to the Blank Generation, and
I can take it or leave it each time.

Before I move on I would just like to mark the level of inactivity in Greece which flatters the numbers more than a little.

Bond Markets

Last week there was a fair bit of cheerleading for this. From the Financial Times.

Greece has wrapped up the sale of a seven-year bond after a 48-hour delay blamed on international market turbulence, raising €3bn at a yield of 3.5 per cent. The issue marked the first time since 2014 that the country has raised new money. A five-year bond issue last July raised €3bn, about half of which involved swapping existing debt for longer-dated paper.

The problem is in the interest-rate as Greece has got the opportunity to borrow at a much higher rate than it has been doing! Let me hand you over to the European Stability Mechanism or ESM.

The loans, at very low-interest rates with long maturities, are giving Greece fiscal breathing space to bring its public finances in order……..Moreover, the EFSF and ESM loans lead to substantially lower financing costs for the country. That is because the two institutions can borrow cash much more cheaply than Greece itself, and offer a long period for repayment.

As you can see the two narratives are contradictory as we note Greece is now choosing to issue more expensively at a considerably higher interest-rate or yield. This matters a lot due to its circumstances.

They point to the debt-to-GDP ratio, which stands at more than 180%.


I would be more than happy if the Greek economy was set to grow more quickly than the UK as frankly it not only needs to be growing much faster it should be doing so for the reason I explained earlier. As someone who has consistently made the case for it needing a default and devaluation I find it stunning that the Bloomberg article claims this is a success for Greece.

 the euro gained 14.2 percent last year — the most among 16 major currencies and the strongest appreciation since 2003

After all the set backs for Greece and its people what they do not need is a higher exchange rate. Finally the better prospects for the Euro area offer some hope of better days but they will be braked somewhat by the higher currency.

The confused narrative seems to also involve claiming that paying more on your debt is a good thing. Awkward in the circumstances to be making the case for sovereignty! But the real issue is to get out of this sort of situation which is sucking demand out of the economy. From Kathimerini.

 It is no coincidence that the “increased post-bailout monitoring” is expected to end in 2022, when the obligation for high primary surpluses of 3.5 percent of gross domestic product expires.

So in conclusion there is a lot to consider here as we wish Greece well for 2018. It badly needs a much better year but frankly also more considered and thoughtful analysis as those who have suffered through this deserve much better. The ordinary Greek was mostly unaware of what their establishment was doing as it fiddled the data and let the oligarchs slip slide away from paying their taxes.


How is the economy of France doing?

It is time for us once again to nip across the Channel of if you prefer La Manche and see what is happening in the French economy. One of the oddities of the credit crunch era is how the UK and French economies have been so out of concert and rhythm. Yes both were hit by the initial impact but then France began to recover whilst the UK struggled. But then the Euro area crisis dragged France down whilst the UK pushed ahead from around 2013 . Now we may be experiencing another switch over so let us take a look.

France GDP

If we start with the economic output as measured by Gross Domestic Product or GDP then Insee told us this on Tuesday.

In Q4 2017, GDP in volume terms* increased again: +0.6%, after +0.5% in Q3. On average over the year, GDP accelerated markedly: +1.9% after +1.1% in 2016.

We can quickly see that it was both a better quarter and a better second half to the year meaning that 2017 was a fair bit better than 2016. This matters in itself but also because France had previously looked like it had got what you might call the Portuguese or Italian disease where so often even in what should be good years the economy only manages to grow by around 1%. Or if we one of the phrases of Bank of England Governor Mark Carney France had looked nowhere near “escape velocity” but now is building up speed.

Economists will like a break-down which includes both higher investment and what used to be badged as export-led growth.

Total gross fixed capital formation (GFCF) accelerated
slightly (+1.1% after +0.9%) while household consumption
expenditure slowed down (+0.3% after +0.6%)…….Foreign trade balance contributed positively to GDP
growth (+0.6 points after −0.5 points): exports accelerated
markedly (+2.6% after +1.1%) while imports slowed down
sharply (+0.7% after +2.4%).

A feature of this has been something we have also seen in the UK which is an improvement in the manufacturing sector.

In Q4 2017, total production accelerated slightly in Q4
(+0.8% after +0.7%), mainly due to manufactury industry
(+1.5% after +0.8%)……..On average over the year, total production sped up (+2.3% after +0.9%), in particular in manufacturing industry (+2.0% after +0.8%) and in construction.

A difference is to be seen in the construction sector which grew by 2.4% in France in 2017 whereas the UK construction sector has seen a 9 month recession. There is a hint of slowing in France as unlike the overall economy the construction sector slowed but it continued to grow.

Before we move on we need to note that the trade position for the year was not as good as the last quarter because of rising imports.

On average over the year, exports considerably accelerated
(+3.5% after +1.9% in 2016) while imports progressed
virtually at the same pace than in 2016 (+4.3%
after +4.2%).

Looking ahead

The various business surveys are positive with this morning’s being especially so.

French manufacturing sector growth remained
elevated at the start of 2018, pulling back only
marginally from December’s near 17-and-a-half
year peak. ( Markit PMI )

Even the higher value for the Euro on the foreign exchanges has done little so far to reduce the upbeat view.

Goods-producers continued to benefit from strong
demand conditions in both domestic and foreign
markets, with the rates of expansion in total new
orders and new export orders among the sharpest
in the survey history.

Also there was good news for a still troubling issue.

In turn, firms took on additional workers to enhance operating capacity and boost output.

This added to the picture provided in the latter part of January for the overall economy.

The French private sector economy started 2018
where it left off last year, with the headline flash
composite output PMI figure remaining among the
highest recorded in the survey’s near 20-year

Also more hopeful news for the unemployed.

A sharp pick-up in client demand – indeed the
strongest recorded by the PMI in over six-and-ahalf
years – encouraged a further sharp round of
job creation.

As you can see the official forecast for the early part of 2018 is upbeat too.

In January 2018, the business climate has faltered slightly after having reached its highest level for ten years last December. The composite indicator, compiled from the answers of business managers in the main sectors, has lost two points. Nevertheless, at 110, it is still well above its long-term mean (100).

Another type of boost?

From the International Business Times.

France will include sales of illegal drugs in its gross domestic product (GDP) calculations.

The Insee statistics agency made the announcement as part of a pan-European effort for nation states to include the sales of drugs in their economic growth figures.

So er higher and higher but France will not walk this way so far at least.

Unlike the Dutch, France has ruled out including prostitution in the figures, saying that it cannot always be verified whether a sex worker has provided consent.

True I guess but a more fundamental issue is whether we have any real idea of the numbers as let’s face it these are areas where people are perhaps most likely to not tell the truth.

As to how much? There is this.

The head of Insee’s national accounts, Ronan Mahieu, downplayed the impact that the new calculations could have on French GDP figures.

He told the Local that France’s current GDP of €2.2tn (£1.9tn) would only increase by “a few billion euros”.

I have to confess that this bit was a little mind-boggling.

French revenues for illegal drug use will be based upon figures that are provided to Insee’s economics department by specialists.

Should they ever have to advertise for such “specialists” the internet may break!

Labour market

Here there have been improvements as in the year to December the unemployment rate had fallen from 9.9% to 9.2%. The catch was that it is still above the Euro area average of 8.7% and well above the 7.3% of the European Union.

If we switch to employment we see that whilst things are continuing to improve as of the last data set the state of play is not as positive from this leading indicator as the ones above.

In Q3 2017, net payroll job creation reached 44,500,
that is an increase of +0.2% after an increase of +0.4%
in the previous quarter. The payroll employment
increased by 49,900 in the private sector while it
decreased by 5,400 in the public sector.


As we make our journey through the French economy it is nice to be able to record better times. How much good news that provides to the UK I am not so sure as whilst it should be helpful to us via trade we have been out of phase with each other for a while now. A burst of economic growth will help France with this issue.

At the end of Q3 2017, the Maastricht debt reached €2,226.1 billion, a €5.5 billion decrease in comparison to Q2 2017. It accounted for 98.1% of gross domestic product (GDP), 1.0 point lower than last quarter. The net public debt declined more slightly (€ −1.5 billion).

But the major difference with the UK is the way that the employment and unemployment situations have diverged. Much of the difference but not all has been in lower paid jobs but jobs none the less. Meanwhile there is an area where the French seem to be getting more like the British.

In Q3 2017, the rise of prices of second-hand dwellings amplified: +1.6% compared to the previous quarter (provisional seasonally adjusted results), after +0.7%. As observed since the end of 2016, the increase is more important for flats (+1.9%) than for houses (+1.4%).

Over a year, the increase in prices continued to accelerate: +3.9% compared to Q3 2016, after +3.1% the quarter before.

If there is a catch it is around the need for such an expansionary monetary policy with negative interest-rates and ongoing QE at a time of accelerating growth.

UK productivity rises as real wages and employment fall

After yesterday’s inflation paradox where we in the UK were told it was rising ( CPI), falling ( RPI) and also staying the same ( CPIH) there has been a couple of bits of good news. First not only for inflation prospects but the prospect of having reliable heating this winter and for the latter Italy will be even more grateful after having to declare a state of emergency. From Reuters.

All main arteries that supply neighbouring countries from Austria’s main gas pipeline hub were back online before midnight after a deadly explosion there shut it down on Tuesday, the co-head of Gas Connect Austria said on ORF Radio on Wednesday.

Also looking ahead UK consumers can expect lower water bills as the regulator has announced this already today.

Our initial view of the cost of capital – based on market evidence – is 3.4% (on a real CPIH basis). In RPI terms it is 2.4%, which is a reduction of 1.3% from the 2014 price review. The effect of this change alone should lower bills of an average water and wastewater customer by about £15 to £25.

It is hard not to have a wry smile in that they are in line with the UK establishment by using CPIH but also reference RPI! Oh and whilst the news is welcome we should not ignore the fact that Ofwat has looked the other way as UK water bills have risen year after year.

Real Wages

Whilst the news above is welcome sadly inflation has been higher than wage growth in the credit crunch era as shown by the chart below.

The one area where a little cheer is provided is clothing. They do not compare with house prices so let me help out. Yesterday’s data release is very unwieldy but if we pick the middle of 2007 as June the house price index was 97.7 and as of October this year it was 117.4. Plenty of food for thought there as against nominal wages may be not so bad but there is a catch which is that we are comparing to the previous peak. Of course the picture in terms of real wages is worse as they have fallen.

As to the more recent trend then housing costs are depressing real wages still. The establishment try to hide this as we see here.

Owner occupiers’ housing costs (OOH) in the UK under the rental equivalence approach have grown by 1.9% in Quarter 3 (July to Sept) 2017 compared with the corresponding quarter of the previous year.

In their fantasy world ( remember they use Imputed Rents which are never paid) you might think that housing costs are rising more slowly than other inflation. But if you switch to actual and real prices of which house prices are one then you get this.

OOH according to the net acquisitions approach have grown by 3.9% in Quarter 3 2017 compared with the corresponding quarter of the previous year.

As you can see the impact of housing costs on the ordinary person’s budget over the past year looks very different if you use real numbers as opposed to made up ones from the fake news registry. On this road the UK real wages situation looks different as a rough calculation shows that CPIH would have been 3.1% just like CPI in October.

The end of “overtime”?

Just for clarity this in the UK involves working beyond your contracted hours and the state of play according to the Resolution Foundation is this.

The typical premium has gone from over 25 per cent in the 1990s to under 15 per cent today. Only one in five workers now get traditional time and a half rates. Most women get absolutely no pay premium at all, possibly because they are more likely to work in sectors without unions.

We can see that as time has passed the reduction in the premium for overtime has put downwards pressure on pay measures. The scale of the issue is shown here.

This is a big deal because a lot of us do paid overtime – 2.6 million people do over 1 billion hours of it a year (and that’s before we even start on the 1.5bn hours of unpaid overtime). Men and those doing manufacturing or transport jobs are most likely to be doing some, but amongst those that do overtime it is a bigger deal financially for part timers and women.

So it has a solid impact which if we look at the trends has negative. The problem is what to do about it? Invariably the Resolution Foundation aligns itself with the central planners but sadly I doubt we can simply wish the problem away by legislation. After all we have an employment success story and some of that seems likely to be due to lower wages at the margin. You could argue employers are being more efficient in allocating hours and work which is a good thing. However it is an alloyed good thing as this time period is one where we have seen the growth of zero hours contracts which presumably have taken up some of the slack. Some types of work ( most of my career for example) are defined around performing tasks not how long it takes to do them so perhaps this definition of work has expanded. More research is welcome though especially into why women seem much less likely to benefit from overtime.

Today’s data

There was slightly better news on wages driven mostly by higher bonuses.

Latest estimates show that average weekly earnings for employees in Great Britain in nominal terms (that is, not adjusted for price inflation) increased by 2.5% including bonuses and by 2.3% excluding bonuses, compared with a year earlier.

Still a fair way below the hopes and expectations of the Bank of England and this is what it does to real wages.

In the three months to October 2017, real earnings decreased by 0.2% (including bonuses) and by 0.4% (excluding bonuses) compared with a year earlier.

That is using the CPIH measure so if you want it with house prices add around 0.3% to the decline.

Adding to the welcome news was another fall in unemployment.

There were 1.43 million unemployed people (people not in work but seeking and available to work), 26,000 fewer than for May to July 2017 and 182,000 fewer than for a year earlier.

However for perhaps the first time there is a hint of a change ( 2 months data now) in what up until now has been an employment success story.

The UK employment rate fell by 0.2 percentage points to 75.1% in the three months to October 2017 compared with the previous quarter.The level of employment fell by 50,000 for men and by 6,000 for women.


We see a complex picture in today’s data. Wage growth is up on a three monthly basis but this is not because October was an especially good month ( 2.3%) it was that July which dropped out of the data was a particularly weak one (1.7%). Ironically the weaker employment data may offer a little hope as rising output with lower employment will be good for the productivity data and this is confirmed by the hours worked numbers.

Between May to July 2017 and August to October 2017, total hours worked per week decreased by 5.9 million to 1.03 billion.

However on the other side of the coin the employment data is simultaneously troubling as the success saga has at best reached a soggy patch. Mostly it seems that it was the self-employed who saw a change.

 The employment level decreased by 50,000 for men and by 6,000 for women………..The total number of self-employed decreased by 41,000 in the three months to October 2017 compared with the three previous months.