The unemployment rate in France continues to signal trouble

It is time for us to nip across the Channel or perhaps I should say La Manche and take a look at what is going on in the French economy. This morning has brought news which reminds us of a clear difference between the UK and French economy so let us get straight to the French statistics office.

In Q4 2016, the average ILO unemployment rate in metropolitan France and overseas departments stood at 10.0% of active population, after 10.1% in Q3 2016.

Thus we note immediately that the unemployment rate is still in double-digits albeit only just. Here is some more detail.

In metropolitan France only, the number of unemployed decreased by 31,000 to 2.8 million people unemployed; thus, the unemployment rate decreased by 0.1 percentage points q-o-q, standing at 9.7% of active population. It decreased among youths and persons aged 50 and over, whereas it increased for those aged 25 to 49. Over a year, the unemployment rate fell by 0.2 percentage points.

So unemployment is falling but very slowly and it is higher in the overseas departments. It is also rising in what you might call the peak working group of 25 to 49 year olds. It was only yesterday we noted that the UK unemployment rate was much lower and in fact less than half of that above.

the unemployment rate for people was 4.8%; it has not been lower since July to September 2005

Thus if we were looking for the key to French economic problems it is the continuing high level of unemployment. If we look back to pre credit crunch times we see that it was a little over 7% it then rose to 9.5% but later got pushed as high as 10.5% by the consequences of the Euro area crisis and has only fallen since to 10% if we use the overall rate. Thus we see that there has only been a small recovery which means that another factor is at play here which is time. A lot of people will have been unemployed for long periods with it would appear not a lot of hope of relief or ch-ch-changes for the better.

Among unemployed, 1.2 million were seeking a job for at least one year. The long-term unemployed rate stood at 4.2% of active population in Q4 2016. It decreased by 0.1 percentage points compared to Q3 2016 and Q4 2015.

The long-term unemployment rate is not far off what the total UK unemployment rate was for December (4.6%) which provides a clear difference between the two economies. Here is the UK rate for comparison.

404,000 people who had been unemployed for over 12 months, 86,000 fewer than for a year earlier

It is not so easy to get wages data but the non-farm private-sector rise was 1.2% in the year to the third quarter. So there was some real wage growth but I also note the rate of growth was slowing gently since the peak of 2.3% at the end of 2011 and of course inflation is picking up pretty much everywhere as the US “surprise” yesterday reminded pretty much everyone, well apart from us. Unless French wage growth picks up it like the UK will be facing real wage falls in 2017.

Productivity

There is an obvious consequence of the UK producing a broadly similar output to France with a lower unemployment rate if we note that productivity these days is in fact labour productivity. There are always caveats in the numbers but the UK Office for National Statistics took a look a year ago.

below that of Italy and France by 14 and 15 percentage points respectively ( Final estimates for 2014 show that UK output per worker was:)

My worry about these numbers has always been Japan which for its faults is a strong exporter and yet its productivity is even worse than the already poor UK.

above that of Japan by 14 percentage points

Economic growth

This remains poor albeit with a flicker of hope at the end of 2016.

In Q4 2016, GDP in volume terms* accelerated: +0.4%, after +0.2% in Q3. On average over the year, GDP kept rising, practically at the same pace: +1.1% after +1.2% in 2015. Without working day adjustment, GDP growth amounts to +1.2 % in 2016, after +1.3 % in 2015.

However the pattern is for these flickers of hope but unlike the UK where economic growth has been fairly steady France sees quite wide swings. For example GDP rose by 0.6% in Q1 so the economy pretty much flatlined in Q2 and Q3 combined. Whether this is a measurement issue or the way it is unclear. We do know however that it seems to come to a fair extent from foreign trade.

All in all, foreign trade balance contributed slightly to GDP growth: +0.1 points after −0.7 points. ( in the last quarter of 2016).

But as we look for perspective we do see an issue as for example 2016 should have seen two major benefits which is the impact of the lower oil price continuing and the extraordinary stimulus of the ECB ( European Central Bank). Yet economic growth in 2015 and 2016 were both weak and show little signs of any great impact. If we switch to the Euro then its trade weighted value peaked at 113.6 in November 2009 and has fallen since with ebbs and flows to 93.5 now so that should have helped overall. In the shorter term the Euro has rotated around its current level.

Production

With its more dirigiste approach you might expect the French economy to have done better here but as I have pointed out before that is not really so. If we look at manufacturing France saw growth in 2016 but we see a hint of trouble in the index for it being 103 at the end of 2016 on an index based at 100 in 2010. So overall rather weak and poor growth. Well it is all rather British as we note the previous peak was 118.5 in April 2008. Actually with its 13% decline that is a lot worse than the UK.

manufacturing (was) 4.7% lower when compared with the pre-downturn peak in February 2008.

Of course there are also links as the proposed purchase of Opel ( Vauxhall in the UK) by Peugeot reminds us.

Oh and those mulling the de-industrialisation of the West might want to note that the French manufacturing index was 120.9 back in December 2000.

Debt and deficits

This has received some publicity as Presidential candidate Fillon said this only yesterday. From Bloomberg.

Reviving a statement he made after becoming prime minister in 2007, Fillon said France is essentially bankrupt and warned that it can face situations comparable to those of Greece, Portugal and Italy. “You think it can’t happen here but it can,” he said.

As to the figures the fiscal deficit at 3.5% of GDP is better than the UK but of course does fall foul of the Euro area 3% limit. The national debt to GDP ratio is 97.5% and has been rising. On the 7th of this month I pointed out that France could still borrow very cheaply due to the ECB QE program but that relative to its peers it was slipping. That has been reinforced this week as for the first time for quite a while the Irish ten-year yield fell to French levels.  It may seem odd to point this out on a day when France has been paid to issue some short-tern debt but the situation has gone from ultra cheap to very cheap overall and there is a cost there.

Comment

I pointed out back on the 2nd of November last year that there were more similarities between the UK and French economies than we are often told but that there are some clear differences. We have looked at the labour market today in detail but there is also this.

There is much to consider here as we note that for France the new economic growth norm seems to be 1% rather than the 2% we somewhat disappointedly recognise for ourselves. Over time if that persists the power of compounding will make it a big deal.

Oh and of course house prices if we look at the UK boom which began in the middle of 2013 we see that France has in fact seen house prices stagnate since then as the index was 103.03 ( Q2 2013) back then compared to 102.82 in the third quarter of 2016

UK Real Wage growth has gone negative if you use the RPI

Today we arrive at the latest data on the UK labour market and in particular on what is the number one statistic which is wage growth. From this we can look at real or inflation adjusted wages and get an idea of the likely trajectory for consumer spending in the UK economy. What we do know is that inflation is beginning a march higher and is now in an area where real wage growth has faded substantially if you use the official CPI measure at 1.8% or now gone if you use the RPI at 2.6%. If we look at the February report from the Bank of England Agents then actual wage growth may be fading as well.

Indeed, the average pay settlement was expected to ease in 2017 to 2.2% from 2.7% in 2016 (Chart C), with the number of pay awards between 3% and 4% expected to fall significantly. Settlements were expected to moderate in all sectors, with the largest decline anticipated in consumer services,

Inflation up and wage growth down is not auspicious for real wages.

Executive pay

An awkward topic for the Financial Times as it considers both its readership and its advertisers. But there is an obvious issue here.

The average blue-chip CEO in the UK earned £4.3m in 2015. The average national wage was £28,000.

The size of the pay packets indicate greed and there are examples of how that is affecting how companies are run.

LTIPs pay out handsomely if certain targets are hit. But they have proved open to abuse. CEOs are suspected of prioritising share repurchases or debt-fuelled takeovers — with little regard for long-term value creation — to manipulate earnings per share, a common LTIP target. (LTIP is Long Term Incentive Plan).

There have been more than a few criticisms of this sort of thing.

There is also a compelling macroeconomic argument for change, put forward by Andrew Smithers and others, which posits that poorly designed bonus schemes have held back investment and productivity growth.

Pensioners

Much has been going on with pensioner incomes in the credit crunch era as the Resolution Foundation reports.

median pensioner income has been playing catch up with non-pensioner incomes for many years and, from 2011-12 onwards, the living standards of the typical pensioner after housing costs have actually been higher than those of the typical non-pensioner. Having been £70 a week lower than typical working-age incomes in 2001-02, typical pensioner households now have incomes that are £20 a week higher than their working-age counterparts.

Quite a shift isn’t it? Actually some care is needed as we see here.

Instead, each year new individuals reach pension age (usually with higher incomes than the average existing pensioner) while others of course die (usually with lower than average incomes).

So we have a compositional issue where we have a pensioner body which seems to be not doing so well but the median income of the overall number is being pulled higher as younger pensioners are better off. A clear if extreme example would be people retiring like Baron King of Lothbury with his circa £8 million pension pot from the Bank of England or Professor Sir Charlie Bean. Of course they also get new jobs from the establishment they served. In fact they are examples of a growing trend albeit they are of course highly rewarded.

In fact, almost one in five pensioner families now have at least one person in work.

There are clearly things to welcome here. The waves of better off pensioners are helping with the issue of pensioner poverty although of course some may welcome continuing working but some may have to. Also home owning pensioners will have benefited in paper wealth terms at least from the rise in house prices.

However looking ahead there appears to be much less bright prospects for millennials.

With millennials struggling not just in the labour market but also in relation to asset building – particularly in terms of housing – there is a growing sense that the current generation of young adults is facing a new set of living standards challenges which require fresh thinking if the generational progress that once seemed inevitable is to be restarted.

A consequence of the monetary easing and QE (Quantitative Easing) of the Bank of England of which there will be another £775 million today. Only yesterday we learned that house prices were rising at an annual rate of 7.2% putting them ever further out of reach of most millennials leaving us to mull this.

However, this generation-on-generation progress appears to have stalled in the 21st Century.

Today’s data

The quantity numbers remain very good as we see here.

There were 31.84 million people in work, 37,000 more than for July to September 2016 and 302,000 more than for a year earlier……For the latest time period, October to December 2016, the employment rate for people was 74.6%, the highest since comparable records began in 1971.

So the record on people in work is a success reinforced by the fact that we are seeing more gains in full-time than part-time work at least according to the official data. This has helped the situation with regards to unemployment.

There were 1.60 million unemployed people (people not in work but seeking and available to work), little changed compared with July to September 2016 but 97,000 fewer than for a year earlier……..The unemployment rate was 4.8%, down from 5.1% for a year earlier. It has not been lower since July to September 2005.

Actually if we move to the single month rate for December we see that the unemployment rate fell to 4.6% which bodes well going forwards.

What about wages?

Between October to December 2015 and October to December 2016, in nominal terms, total pay increased by 2.6%, lower than the growth rate between September to November 2015 and September to November 2016 (2.8%).

So solid for these times anyway but the sort of dip forecast by the Bank of England Agents.

Here is the official view of the real wages position.

Comparing the 3 months to December 2016 with the same period in 2015, real AWE (total pay) grew by 1.4%, which was 0.5 percentage points smaller than the growth seen in the 3 months to November.

Care is needed with this 3 month average in a period of rising inflation as it is already out of date. We know that inflation is higher now and of course if we look for inflation indices which do not ignore owner occupied hosuing costs we know they give a higher inflation reading. For example inflation as measured by the Retail Prices Index is usually around 1% higher in annual terms than the official measure.

If we look at the single month of December whilst it was good for unemployment it was not good for wages growth as it fell to 1.9%. So real wage growth was 0.3% on the official measure or -0.6% if you use the RPI.

Comment

The drumbeat of the UK economic recovery such as it is has been the rise in employment where there has been the sort of performance that economists have long called for. In a nutshell we wanted to be more like the German model which of course has its ironies in a post EU leave vote world. Now that we have that we are worried about a Germanic style level of wage increases. Oh well!

However looking forwards for 2017 we will see real wages fall and the truth is they already are if we allow for the leads and lags in the statistics. This poses a problem when we look at what real wages have been doing in the credit crunch era.

If we use RPI the situation is of course even worse than that.

Japan continues to see wages stagnate

A feature of the credit crunch era has been weak wage growth and in particular weak real wage growth. More than a few countries such as my own the UK have not seen real wages fully recover to their pre credit crunch peaks. If we look back we see that the assumptions of the Ivory Towers ( in the UK for example wage growth of ~4% and real wage growth of ~2%) were already built on rather shaky foundations as real wage growth was already fading. Sadly the Ivory Towers learned little as I note last week at its Inflation Report press conference the Bank of England was criticised for consistently over-estimating wage growth. Or if you like another Forward Guidance failure.

However the real front line for the malaise in real wage growth is to be found by looking east to Nihon or the land of the rising sun where there has been trouble for some time. The problem was described by the World Economic Forum back in June 2013.

According to a survey by Reuters in February, 85% of responding firms said they would maintain current wage levels or make further cuts this year. Japanese companies typically resort to wage cuts for workers with so-called life-long employment contracts rather than lay-offs to adjust for cyclical downturns or due to tougher price competition from abroad. As a result, the unemployment rate has been low, but wages continue to decline. Due to the strong protection of permanent workers, firms typically have redundant permanent workers, thus have no incentive to increase their wages.

People sometimes ask me about full employment but Japan has in some areas gone further and had a type of over employment. In the time I was working there people were employed to count numbers crossing walkways or to open lift doors. A nice service but not especially necessary. However there is another feature of the Japanese labour market which keeps wages low.

Worse yet, only a third of the Japanese labour force (typically older and male labour) has a permanent contract. The majority of the young and female labour force is working under a temporary contract with much lower salary and practically no job security, which creates a kind of caste system in the labour market.

Enter Abenomics

This was supposed to be something of a cure-all for the Japanese economy with higher inflation and GDP (Gross Domestic Product) growth boost wages. also the third arrow of Abenomics was supposed to be reforms to help deal with the labour market issues above. Regular readers will be aware that I doubted both routes from the beginning as Prime Minister Abe was an “insider” who in his previous term was guilty of what is called pork barrel politics. However places like Bloomberg and the Financial Times supported the new programme of Abenomics and have regularly produced headlines describing success even when the numbers do not describe that at all.

2016 was a better year

NHK News takes up the case.

Japan’s labor ministry says average monthly wages adjusted for inflation rose in 2016, the first increase in 5 years.

The data is the preliminary result of a nationwide survey.

The ministry says the average monthly wage, including bonuses and overtime pay, was about 315 thousand yen, roughly 2,800 dollars. That’s up 0.7 percent in real terms from the previous year.

The good news is that there was a rise albeit a small one. However there are several issues raised as we are 4 years or so into Abenomics and this is way below what was promised. There is also a clear fundamental flaw as wages were supposed to rise with higher inflation but instead we see this reported.

Lower consumer prices pushed the adjusted figure higher.

So exactly the opposite of what was intended! If we move to The Mainichi we see little sign of the promised reforms either.

The average monthly pay of full-time workers in 2016 increased 0.8 percent to 411,788 yen from the preceding year, while that of part-time workers was down 0.1 percent to 97,670 yen.

December

If we move to the data for the month of December we see an all too familiar pattern. From Reuters.

Japanese wages, on an annual inflation-adjusted basis, dropped in December for the first time in a year, government data showed on Monday, a setback for hopes that consumer spending can increase and help lift economic growth.

The decline was caused by a rise in the cost of living, which outpaced nominal pay hikes, officials said. Higher prices for items such as fresh vegetables have increased living costs.

Higher inflation driving real wages lower is somewhat awkward for Abenomics which plans for exactly the reverse! If we look at the numbers cash earnings were 0.1% higher than a year before so inflation did not have to be much to push real wages lower. The worst sector to be in was the utility one where wages fell by 2.8% and the best was the real estate sector where they rose 4.5%. This meant that real wages fell by 0.4% on a year before and December with its high level bonus payments meaning it is the peak month ( around 60% higher than the average) is the worst month for this too happen.

Prospects

Earlier I quoted from a wages survey from 2013 so how is that going now? From Reuters.

Nearly two-thirds of Japanese companies do not plan to hike their workers’ wages this year, a Reuters poll showed, a blow to Prime Minister Shinzo Abe’s campaign for higher pay to spur a recovery and a way to end two decades of deflation.

The Reuters Corporate Survey, conducted Jan. 4-17, also found that most wage gains over the past four years since Abe came to power have been minimal and that nearly one-quarter of firms have implemented none at all.

Indeed Reuters appears to have been reading me.

On the other hand, prices may increase as oil prices rebound, which will curb (inflation-adjusted) real wages and hurt households’ purchasing power,

Also this next bit makes grim reading for those in the media who have proclaimed success on the wage front in Japan.

The Corporate Survey also asked companies how much they have raised wages since 2012. Some 23 percent said they have kept overall wages unchanged, while 51 percent have raised them around 0.5-1.5 percent. Only 26 percent said wages had risen by about 2 percent or more.

Comment

Back on the 15th of May 2015 I pointed out my fears in this area.

If we look at real wages I note the number of references in rising wages in Governor Kuroda’s speech. Except real wages fell by 2.6% in the year to March which means that they have fallen in every month of the two years of QQE now.

There has been an improvement on an annual basis which you can see if I give you the real wages data, 2013 -0.9%,2014 -2.8%,2015 -0.9% and 2016 +0.7%. So it is possible to argue that there is an improving trend. Except the elephant in that particular room is that it is lower inflation which has driven that ads opposed to the higher inflation Abenomics is so keen on. Also you can see that the overall number for real wages is lower.

If we look back wages rose in Japan at the end of the last century but have fallen this and it is hard to avoid the thought that the numbers below have impacted here. From The Economist.

The number of 20- to 29-year-olds in Japan has crashed from 18.3m to 12.8m since 2000, according to the World Bank. By 2040 there might be only 10.5m of them. Cities like Tama are therefore playing not a zero-sum game but a negative-sum game, frantically chasing an ever-diminishing number of young adults and children.

It also looks at the Okatuma region.

Children have become so scarce that the large primary school is only about one-quarter full. Residents in their 70s outnumber children under ten by more than five to one

The Bank of Japan can do all the “yield curve management” it likes but even if it ends up buying the Japanese government bond market how will that improve the real economy and in particular wages? Still it could be worse you could be one of the footballers invited to play at the Fukushima TEPCO plant.

welcomes professional soccer players at Daiichi to show progress made at the power station

 

UK real wage growth is even worse if you factor in house price growth

After yesterday’s higher inflation data and it was across the board as the annual rate of hose price inflation increased as well we move to the labour market today and in particular wages. Unless we see a surge in wage growth in the UK real wages are set to fade and then go into decline this year but before we get to them we have another source of comparison. Something which immediately has us on alert as it will cheer the Bank of England.

Wealth

This is what the Bank of England would call this from the Financial Times today.

The value of all the homes in the UK has reached a record £6.8tn, nearly one-and-a-half times the value of all the companies on the London Stock Exchange. A rapid rise in the value of the housing stock, which has increased by £1.5tn in the past three years, has created an unprecedented store of wealth for Londoners, over-50s and landlords, according to an analysis by Savills, the estate agency group.

It will be slapping itself on the back for the success of its Funding for (Mortgage) Lending Scheme or FLS which officially was supposed to boost bank lending to smaller businesses but of course was in reality to subsidise bank property lending.  The FLS does not get much publicity now but there is still some £61 billion of it around as of the last quarterly update, since when some has no doubt been rolled into the new Term Funding Scheme. Oh yes there is always a new bank subsidy scheme on the cards.

Whilst the Bank of England will continue to like the next bit those with any sort of independent mind will start to think “hang on”.

As well as rising sharply in nominal terms, housing wealth has grown in relation to the size of the economy: it was equivalent to 1.6 times Britain’s gross domestic product in 2001, rising to 3.3 times in 2007 and 3.7 times in 2016.

Only on Tuesday night Governor Carney was lauded for his work on “distributional issues” but here is a case of something he and the Bank of England have contributed to which is a transfer from first time buyers and those climbing the property ladder to those who own property.

If we move to wages then the UK average is still around 6% below the previous peak which poses a question immediately for the wealth gains claimed above. Indeed last November the Institute for Fiscal Studies suggested this.

Britons face more than a decade of lost wage growth and will earn no more by 2021 than they did in 2008 ( Financial Times).

There has been an enormous divergence here where claimed housing wealth has soared whilst real wages have in fact fallen. That is not healthy especially as the main age group which has gained has benefited in other areas as well.

The income of those aged 60 and over was 11 per cent higher in 2014 than in 2007. In contrast, the income of households aged 22-30 in 2014 was still 7 per cent below its 2007 level. The average income of households aged 31-59 was the same in 2014 as in 2007.

As an aside some of the property numbers are really rather extraordinary.

The value of homes in London and south-east England has topped £3tn for the first time, meaning almost half the total is accounted for by a quarter of UK dwellings. This concentration of wealth is most evident in the richest London boroughs, Westminster and Kensington & Chelsea, where housing stock adds up to £232bn, more than all of the homes in Wales, according to analysis based on official data.

Another shift was something I noted yesterday which was the fall in house prices seen in Northern Ireland where wealth under this measure has declined sharply. Has that influenced its political problems? However you look at it there has been a regional switch with London and the South-East gaining. Also there is a worrying sign for UK cricketer Jimmy Anderson or the “Burnley Lara”.

Likewise, homes in Burnley, Lancashire, declined in value over five years, even as most of the UK market boomed.

One area where care is needed with these wealth numbers is that a marginal price ( the last sale for example) is used to value a whole stock which is unrealistic.Before I move on there is another distributional effect at play although the effect here is on incomes rather than wages as Paul Lewis reminds us.

As inflation rises to 1.6%/2.5% the policy of freezing working age benefits for four years becomes less and less sustainable.

Before we move on the Resolution Foundation has provided us with a chart of the nominal as in not adjusted for inflation figures.

 

Today’s Data

The crucial number showed a welcome sign of improvement.

Average weekly earnings for employees in Great Britain in nominal terms (that is, not adjusted for price inflation) increased by 2.8% including bonuses and by 2.7% excluding bonuses compared with a year earlier……average total pay (including bonuses) for employees in Great Britain was £509 per week before tax and other deductions from pay, up from £495 per week for a year earlier

So a pick-up on the period before of 0.2% and at we retain some real wage growth which helps to explain the persistently strong retail sales data.

Comparing the 3 months to November 2016 with the same period in 2015, real AWE (total pay) grew by 1.8%, which was 0.1 percentage points larger than the growth seen in the 3 months to October. Nominal AWE (total pay) grew by 2.8% in the 3 months to November 2016, while the CPI increased by 1.2% in the year to November.

There is obviously some rounding in the numbers above and the inflation measure used is around 1% lower than the RPI these days.

If we move to the detail we see that average earning also rose by 2.8% annually in the year to the month of November alone and the areas driving it were construction (5%) and wholesale and retail (4.2%). Sadly the construction numbers look like they might be fading as they were 8.8% but the UK overall has just seen tow strong months with 2.9% overall wage growth in October being followed by 2.8% in November.

Employment and Unemployment

The quantity numbers continue their strong trend.

There were 31.80 million people in work, little changed compared with June to August 2016 but 294,000 more than for a year earlier…….There were 1.60 million unemployed people (people not in work but seeking and available to work), 52,000 fewer than for June to August 2016 and 81,000 fewer than for a year earlier.

The next number might be good or bad.

Total hours worked per week were 1.02 billion for September to November 2016. This was 1.2 million fewer than for June to August 2016 but 4.8 million more than for a year earlier.

The fall may be troubling but as the economy grew over this period ( if the signals we have are accurate) might represent an improvement in productivity.

It is nice that the claimant count fell in December “10,100 fewer than for November 2016” but I am unsure as to what that really tells us.

Comment

We have seen today some good news which is a pick-up in the UK official wages data. This will help real wages although sadly seems likely to be small relative to the inflation rise which is on its way. However if we widen our definition of real wages we see that the credit crunch era has brought quite a problem. This is that the claimed “wealth effects” from much higher house prices make them look ever higher in real terms as we return to the argument as to how much of the rise is economic growth and how much inflation.

My view is that much of this is inflationary and that once we allow for this then we start to wonder how much of an economic recovery we have seen in reality as opposed to the official pronouncements.

Also we have my regular monthly reminder that the wages figures exclude the self-employed and indeed smaller businesses.

Of UK wages, robotics and the gig economy

Today we advance on the UK wages data knowing that the pick-up in inflation we have been expecting is now coming to fruition. Albeit that today’s wages numbers only bring us up to date of the 3 months to October so we will be experiencing lagged data. Yesterday also reminded us of two things. Firstly how poor the economics profession has become at predicting inflation and that there is invariably an “Early Wire” of them in currency markets as some find themselves being more equal than others. Interestingly the economist Douglas McWilliams has put up a defence this morning.

….and most people think Cebr forecasts are usually right!

Our Doug seems to be a passionate supporter of one of the new forms of measuring GDP or Gross Domestic Product if this from Business Insider in March 2015 is any guide.

Douglas McWilliams, one of the world’s leading economists and a former advisor to UK Chancellor George Osborne and London Mayor Boris Johnson, was allegedly filmed smoking crack in a drugs den in Britain’s capital city.

He is also is facing trial for allegedly assaulting a prostitute on New Year’s Eve after she refused to take crack with him.

Sometimes you really could not make it up.

Meanwhile we see two things from the world of football. Firstly that price inflation is rampant and secondly that capital controls in China may not being doing so well. From BBC Sport.

Chelsea have reportedly accepted a bid of £60m for Oscar – he’ll leave for China in January.

The war on cash

This seems to have developed a new front in what might be called the South China Territories but has been immortalised in song as a land down under. From news.com.au

Speaking to ABC radio on Wednesday, Revenue and Financial Services Minister Kelly O’Dwyer flagged a review of the $100 note and cash payments over certain limits as the government looks to recoup billions in unpaid tax……“The whole point of this crackdown on the black economy is to make sure we close down any potential loopholes,” she said. Despite the broad use of electronic forms of payment, Ms O’Dwyer warned there are three times as many $100 notes in circulation than $5 notes.

What could go wrong? Well there are echoes of the disaster that demonetisation has become in India here.

There are currently 300 million $100 notes in circulation, and 92 per cent of all currency by value is in $50 and $100 notes.

Also there is the issue that this is also presented as a boost to banks and savers will then have to put more money with them as another move favours the “precious”. Oh and I would wager that the unofficial economy in Australia is a lot more than 1.5% of GDP.

Robotics

As we look to the future of wages growth it is hard not to wonder about the effect of improved robots on the situation. Just over a year ago Bank of England Chief Economist Andy Haldane offered this view.

For the UK, that would suggest up to 15 million jobs could be at risk of automation.  In the US, the corresponding figure would be 80 million jobs.

For some jobs this will depress wages although of course it may well boost others. There is a cautionary note which is that Andy has a very poor forecasting record which I am sure any respectable AI style robot could improve. The Resolution Foundation has also considered possible benefits from this general trend and theme.

Given high employment, terrible productivity performance and low investment, the UK arguably needs more automation, not less.

Today’s UK numbers

There was in fact some good news from the wages series.

Between August to October 2015 and August to October 2016, in nominal terms, total pay increased by 2.5%, slightly higher than the growth rate between July to September 2015 and July to September 2016 (2.4%).

So both a higher number and an upwards past revision. This was driven by the fact that wages rose by 2.8% in the month of October alone driven by an 8.6% rise in construction wages and a 4.4% rise in the wholesale sector ( retail and hotels). This meant that real pay would have risen in October as inflation also dipped slightly but the more general pattern is stationary.

Over the same 3-month period, real AWE (regular pay) grew by 1.7%, the same as the growth seen in the 3 months to September

Of course the wages numbers look much worse if we use the RPI or Retail Price Index as our inflation measure where we find ourselves knocking around 1% off the numbers above.

The next number can be seen in two ways.

Total hours worked per week were 1.01 billion for August to October 2016. This was 5.0 million fewer than for May to July 2016 but 7.3 million more than for a year earlier.

Some are reporting this as a post EU vote hiring freeze. It does show a possible change in our previously booming employment position but of course with GDP growing does in fact show a rise in likely productivity.

Whilst the unemployment rate remained at 4.8% there was in fact a small but welcome fall in unemployment.

There were 1.62 million unemployed people (people not in work but seeking and available to work), 16,000 fewer than for May to July 2016 and 103,000 fewer than for a year earlier.

However the claimant count or registered unemployment did rise by 2400 in November which may be a sign of something but this number is not only experimental it comes from a series which no-one has any great faith in.

Comment

There is much to consider in all of this and the undercut to another pretty good set of UK labour market is those who are excluded such as the self-employed who do not appear in the average earnings numbers. Some insight into conditions in the gig industry have been provided by Izzy from FT Alphaville as shown below.

The interviewer stressed I would be earning a standard rate of £7 per hour plus a £1 per delivery bonus for every order completed, but frequently emphasised that I would probably be taking home as much as £12 per hour because of surge incentives. …………In total I did five shifts, and earned an average of £8.10 per hour. The London living wage is supposed to be £9.75, according to London authorities. The national required living wage is £7.20 but goes to £7.50 in April next year.

There were various other issues such as compulsory weekend shifts and Izzy’s view that to get surge wages you had to be available 24/7. As to efficiency the app drained her phone battery quickly and there was also this.

Outside of the office lay heaps of bikes atop of each other, most of them cast loosely aside the building. There appeared to be absolutely nowhere to secure a bike properly — which I thought strange for a cycling courier service.

Actually this resonated with me but from a different industry as my brother has worked as a driving instructor on as franchise basis where companies produce earnings forecasts which are somewhere between misleading and outright fantasy in practice. Both have a type of fixed cost as Deliveroo requires the rider to but branded corporate clothing and driving instructors have a period to which they must commit to pay the weekly franchise fee.

If we return to the official picture then the Resolution Foundation has provided some perspective with this.

 

 

 

 

 

What a carry on from Bank of England Governor Carney

Today we find ourselves reviewing the latest data on the UK employment and wages situation. We do so noting that the inflation situation for real wages has briefly improved although one months data here compares with the 3 months over which the headline wages data is calculated. But before we get to it there were some extraordinary statements made to the Treasury Select Committee of UK Parliament by Bank of England Governor Mark Carney. Make what you will of this from the Guardian.

“The thing about forward guidance,” drawled Mogadon Mark Carney, opening one eyelid a millimetre or two, “is that it is guidance that is forward. Which isn’t to say it’s meant to be in any way accurate. Indeed, it would be surprising if it were. The most important thing about forward guidance is that the underlying economic determinants should be correct, not that it should be helpful.”

Now those who remortgaged on the back of his hints and promises of higher interest-rates or took out fixed-rate business loans may be checking the definition of miss-selling at this point as they read the section I have highlighted. Indeed Governor Carney admits that I have been right all along to point out his failures as he admits even he would be surprised if he had been right. This is very awkward for those who have placed themselves full square behind him although to be fair there is probably not much daylight where they placed themselves. I note also that Governor Carney is now a figure of fun in the Guardian, does this mean that he no longer has film-star looks and we need to be told if he is still a rock star central banker I think?

Also there was a particularly dubious statement from Governor Carney. From the Financial Times.

Mr Carney told a committee of MPs that low global interest rates and rising inequality in developed countries were driven by “much more fundamental factors”.

UK interest-rates just got lower because he cut them in August! Oh and he introduced an extra £60 billion of UK QE Gilt purchases to try to reduce Gilt yields (admittedly not going so well right now) and £10 billion of Corporate Bond buying to do the same there. His Chief Economist called this a “Sledgehammer” but Mark now seems to think it was nothing to do with that at all? Odd as he finds the time to try to take any credit he can from it.

Also the issue of rising inequality is another thing which is apparently nothing to do with Governor Carney. As of course time only started in June 2013 some may forgive him for not reading Bank of England research from August 2012.

QE has caused the price of gilts to rise and yields to fall, in turn leading to an increase in demand for, and price of, a wide range of other assets, including corporate bonds and equities.

Indeed it went further than this.

By pushing up a range of asset prices, asset purchases have boosted the value of households’ financial wealth held outside pension funds, but holdings are heavily skewed with the top 5% of households holding 40% of these assets.

Actually we can combine both of Mark Carney’s denials as you see back in 2012 the Bank of England had the opposite view of the impact in savers.

That suggests that deposit holders are likely to have been affected much more by the cuts in Bank Rate than by downward pressure on longer-term interest rates as a result of QE.

Before I move on this from that 2012 paper was a real example of moral hazard when you review your own policies.

The paper shows that QE also has a broadly neutral impact on a fully funded ‘defined benefit’ scheme.

Now whilst they at the Bank of England may have a fully funded pension elsewhere they were in rather short supply and since then the supply has got shorter due to its actions.

Also as happens so often with Bank of England Governors Mark Carney has become keen on a lower value for the pound.

“The UK economy has … had a large external imbalance and that large external imbalance as represented by a large current account deficit needed to be righted,” he said. “The exchange rate is part of that adjustment mechanism.”

Odd that he seems to have got on that particular bandwagon so recently as you could have made that case for years and indeed decades.

Oh and here is a development which ties in yesterday’s inflation numbers with today’s wages data and provides a headache for the distributional denials of Mark Carney.

 

Today’s Data

Employment

This number has seen quite a boom as the UK economy recovers from the credit crunch and it continues as shown below. From the Office for National Statistics.

There were 31.80 million people in work, 49,000 more than for April to June 2016 and 461,000 more than for a year earlier.

There were 23.24 million people working full-time, 350,000 more than for a year earlier. There were 8.56 million people working part-time, 110,000 more than for a year earlier.

So we continue to generate jobs and this means that the employment rate of 74.5% is as high as it has been since the numbers started in 1971. Care is needed as the definition of full-time working is somewhat flexible and we would need to know population size to have an idea of employment per capita.

Unemployment

This opens well too.

The unemployment rate was 4.8%, down from 5.3% for a year earlier and the lowest since July to September 2005…….There were 1.60 million unemployed people (people not in work but seeking and available to work), 37,000 fewer than for April to June 2016 and 146,000 fewer than for a year earlier.

Also I note that unemployment for women fell which is good as last month the situation was different and seemed to be picking them out. In the silver lining there is a cloud but if you make a big deal of it you have to explain why you are pushing a series which was already discredited some 30 years ago.

For October 2016 there were 803,300 people claiming unemployment-related benefits. This was:9,800 more compared with September 2016…9,900 more than for a year earlier.

Wages

These continued as before.

Between July to September 2015 and July to September 2016, in nominal terms, total pay increased by 2.3%, unchanged compared with the growth rate between June to August 2015 and June to August 2016.

Although real wage growth dipped slightly.

Comparing the 3 months to September 2016 with the same period in 2015, real AWE (total pay) grew by 1.7%, 0.1 percentage points lower than seen in the 3 months to August.

Care is needed here though because if we use the Retail Price Index to calculate real wages we see that the growth fades significantly as it these days is around 1% more than the official measure. But if we stick with the official measure you may enjoy some perspective here.

Looking at longer term movements, since comparable records began in 2000 average total pay for employees in Great Britain in nominal terms increased from £311 a week in January 2000 to £505 a week in September 2016; an increase of 62.2%. Over the same period the Consumer Prices Index increased by 40.6%.

Comment

We find much to consider here as Governor Carney continues to twist and turn and indeed spin as he attempts to explain why he cut Bank Rate and eased monetary policy into a currency decline. A simple precis of his approach is that everything good is due to him and bad isn’t. Meanwhile the UK labour market looks like it has carried on regardless with one clear exception which is that if you have employment at a peak wage growth would in the past be much higher. Remember also that the wage growth excludes the self-employed and small businesses. Also higher employment does tend to have this effect these days.

0.2% growth in output per hour in Q3, down from 0.6% in Q2 #productivity

Speaking of numbers this is an intriguing one from Merryn Somerset Webb.

Pension Protection Fund spends £600,000 on PR. Why do they need PR? Someone explain?

 

 

As the prospect of further UK real wage growth fades what about the self-employed?

Today brings us to the labour market report for the UK. Over the period of the credit crunch the quantity numbers have performed very well and scare stories from some economists of 3 or 4 million unemployed have been replaced by record employment and falling unemployment. However we are now in a phase where we are much less sure that unemployment will continue to fall. Also the quality number or wage growth has been somewhere between poor and not so good. In spite of an economy recovery which began in 2013 wage growth has only managed about half of what we would have expected pre credit crunch.We can put this into numbers as those in the Ivory Tower of the Office for Budget Responsibility predicted this back in 2010.

Wages and salaries growth rises gradually throughout the forecast, reaching 5½ percent in 2014.

This reminds us that the long-term trend here has been for wage growth to decline. The improvement in the real wages picture which has been extremely welcome in boosting both consumption and living-standards mostly came about because consumer inflation fell to historically low levels.

What about the self-employed?

Regular readers will be aware that the official average earnings numbers exclude the self-employed and in fact the smaller businesses. This has led to concerns expressed both by me and in the comments section that there would at least be sections of those self-employed with a poorer record for wages growth (and perhaps falls) than stated in the official statistics. This has become an increasingly important issue as the number of people self-employed has grown.

Yesterday the Resolution Foundation released some new research on this subject and it did attract attention for this.

Remarkably, this data suggests that typical earnings for the self-employed were lower in 2014-15 than in 1994-95, twenty years earlier. …….. From their peak (2006-07) to trough (2013-14), typical self-employment earnings fell by 32% – £100 per week.

Ouch! So self-employed earnings have had their own private economic depression. How does this compare with the overall picture?

A fall of 15% compares to a rise of 14% in typical employee earnings

As with ordinary earnings it found that some of this was compositional as in caused by the fact that the newly self-employed were less likely to employ others and worked fewer hours leading to this conclusion.

This analysis suggests that, over the 2001-02 to 2014-15 period as a whole, compositional effects were responsible for over 60% of the fall in average earnings (and there may be other compositional factors that we have not accounted for here), with the remainder being a purer earnings effect.

That still leaves a large gap with the official average earnings series to explain. Also the grim truth is that the credit crunch era did bring outright falls in income for the self-employed.

However, between 2008-09 and 2013-14, while there was still a negative compositional drag, the large majority (86%) of the substantial fall over this period is not explained by compositional effects.

More than a few questions are posed here and some of the answers are hard to find. Some may have been happy to switch from employment to self-employment and others may have been happy to work fewer hours, but it is hard to avoid the few that some were forced to and others were involved in underemployment. As the numbers grow this becomes a bigger issue.

the number of self-employed has grown from 3.3m (11.9% of the workforce) in 2001-02 to 4.5m (14.7%) in 2014-15

There was a flicker of better news at the end which suggested that the economic recovery had finally fed through to the self-employed.

More recently, compositional changes played a positive role and together with strong growth within groups meant a rise in average income in 2014-15

So we hope that this trend continued but we do not do so. The analysis above relies on the Family Resources Survey which has considerable lags in the data it provides.

Back in the day (2008) this was all reviewed by Martin Weale latterly of the Bank of England and recently appointed a Fellow of the ONS. In all his Ivory Tower pages of maths the little people slipped through his net.

Note that firms employing fewer than 20 employees are not surveyed.

I doubt it seemed important to him at the time….

Today’s numbers

Let us open with what remains good news.

The employment rate (the proportion of people aged from 16 to 64 who were in work) was 74.5%, the joint highest since comparable records began in 1971…….There were 23.23 million people working full-time, 362,000 more than for a year earlier. There were 8.58 million people working part-time, 198,000 more than for a year earlier.

Thus we see that more people are employed and the growth these days is not as heavily biased to part-time work as it was. Wages growth nudged higher than we were told last month too.

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

In the meantime so of last month’s data has been revised higher too.

Not so good news

This comes from a nudge higher in unemployment.

There were 1.66 million unemployed people (people not in work but seeking and available to work), 10,000 more than for March to May 2016 but 118,000 fewer than for a year earlier.

Actually this was a type of sexism if you note this.

There were 765,000 unemployed women, 23,000 more than for March to May 2016 but 37,000 fewer than for a year earlier.

I would welcome readers thoughts on why male unemployment fell but women’s rose?

Real Wages

There is an issue here as in spite of the fact that in the latest 3 months wage growth was 2.3% we know that inflation is on the rise. Indeed if we look at the monthly series wage growth in August was 2%. That seems to have been driven by a big swing in bonuses payments from up 8% to -6% but nonetheless we face a position where our real wage growth fades a fair bit if this continues into September and meets an official CPI inflation rate of 1%.

If you look at Retail Price Inflation (2%) then we are now facing the distinct possibility that real wage growth has either ended or faded to a low-level.

Comment

Whilst the situation remains strong overall there is an obvious concern with the rise in unemployment which whilst small overall will matter to the 10,000 concerned. Also there is the issue that we are seeing unemployment rise for women which may be a quirk but may not. But for real wages it would appear that the words of the latest Nobel winning poet are appropriate.

The line it is drawn
The curse it is cast
The slow one now
Will later be fast
As the present now
Will later be past
The order is
Rapidly fadin’
And the first one now
Will later be last
For the times they are a-changin’.

Will that end the apparent improvement for the self-employed?