The UK economy has moved into 2014 with the lights green for go for economic growth. However the experience of the credit crunch era has made many wonder exactly who will be the beneficiaries of any such improvement. One fundamental question is when will workers see a benefit from higher wages and salaries? Actually some are claiming that this has already happened and I intend to address that today as there is a lot of misinformation being presented.
The UK economy in 2014
The business surveys (Purchasing Manager’s Indices) gave their final result for December yesterday and completed a sequence which has now gone 57.3 for manufacturing, 62.1 for construction and 58.8 for the service sector. This compares to a benchmark of 50 and led the compilers to suggest that the UK economy grew by 1% in the last quarter of 2013.
The British Chamber of Commerce has joined this particular party this morning.
Positive Q4 survey suggests that growth will continue and probably strengthen further in the short term
On the basis of these results, the BCC believes GDP growth in Q4 2013 could be 0.9%
There may be an element of hyperbole here as if the UK economy was growing at a quarterly rate of 0.9/1% in the last quarter of 2013 then an acceleration whilst welcome is not that likely. There is a danger that economists simply project the recent improvements forwards ad infinitum a bit like the way so many produced forecasts of disinflation in the Euro area after it was recorded at 0.7% at one point last year. However there were some hopeful hints in the detail of the report. Firstly according to it we may finally be putting the 2007 peaks behind us.
Most Q4 key balances are higher than their pre-recession levels in 2007
Also our perennial balance of payments problem could do with a lot more news like this.
Both export balances in the services sector are at record highs for the survey: export sales (+36%), and export orders (+33%).
Indeed there was an echo of something of a rebalancing theme here as we also were told this.
Five key manufacturing balances are at all-time highs, allaying fears in Q3 that the growth spurt in manufacturing was temporary
However it was not all good news as a familiar worry and concern was flagged up.
Cashflow continues to be an ongoing concern, and may hold businesses back from expanding to meet the growing levels of demand.
These boomed in 2013 as the Society of Motor Manufacturers and Traders or SMMT has told us today.
2,264,737 cars registered in 2013, up 10.8% on 2012 and exceeding SMMT’s 2.25 million forecast for the year.
On average, an additional 600 extra cars registered per day in 2013 than in the previous year.
UK firmly secured as Europe’s second largest car market and only one to grow consistently throughout 2013.
So consumption at least in the form of new cars was very strong in 2013 although as only one in seven cars bought was made in the UK there is yet again a balance of trade issue. Actually UK car production is strong as shown below.
Car production rose 4.5% in first 11 months of year to 1,424,023 units….. (on course to be) the best performance since 2007
In general terms we tend to make cars for export (79.4% of production) and the European markets have been weak so in a way the UK is something of a victim of its own success here as we have sucked in imports.
Also UK car registrations have been boosted from various sources. We wonder at the impact of the Funding for Lending Scheme of the Bank of England and note that it has been associated with more credit of this sort. Also if you regard the redress payments from the banks for payment protection insurance as a type of “helicopter drop” for the UK economy then it will have had an influence too. They totalled £8.9 billion at the end of January 2013 according to the Financial Ombudsman Service. As will the current ultra-low level of official interest-rates although, of course, the rates that individuals pay are usually far from ultra-low.
Why aren’t people feeling this?
There are two factors to intially take into account here. The first is that the recovery is relatively recent and there is always a lag before improvements flow from such a change. The second is that as we can see from the car registration figures we are “exporting” some of the gains and I hope that some of the beneficiaries, who are mostly in Europe, will give the UK some credit for boosting their economies.
However a major factor has been the behaviour of wages which so far according to the official data have not responded at all.
The average weekly wage, including bonus payments, rose by 0.9% comparing August to October 2013 with the same period a year earlier. Average weekly wages including bonus payments before taxes and other deductions from gross pay were £476 in October 2013, up from £471 a year earlier.
Not much of an increase is it? And if we look back to the inflation figures for October we see that it represents a fall in real wages of 1.3% (CPI) and 1.7% RPI. We get a little more hopeful if we note that October alone saw a rise in wages of 1.1% but whilst it is a rise it is a small one. If we look for some perspective, we note that in fact wage growth has been falling for some time, for example, the October 2011 figure was 2.1% and October 2012 saw 1.3%.
An alternative view?
An annual survey called ASHE (Annual Survey of Hours and Earnings) is undertaken by the Office for National Statistics and it is being used to present a different picture. Its results can be summarised below.
In April 2013 median gross weekly earnings for full-time employees were £517, up 2.2% from £506 in 2012.
This presents quite a different picture as whilst real wages were still falling as the Consumer Price Index had risen by 2.4% in the year to April the fall is much lower.
However we did see a “blip” upwards in wages in April 2013 which is likely to have distorted the numbers. The reason behind this was an increase in bonus payments related to the lowering of the top income tax rate from 50% to 45%. If we return to the average wages series from above it recorded growth of 3.8% in April due to this effect. As that has now dropped to 1.1% we can only suspect that a new ASHE survey would in fact show a much lower level of median wage growth than 2.2% as by chance it was taken at the top of a cycle.
So we find ourselves concluding that the situation on a like for like basis would be a lot nearer if the numbers were calculated now. There is a danger for those promoting the 2013 figures that the 2014 figures could in fact be weaker if the developments since continue. Of course the recovery may bail them out but it has not done so yet.
Lies damned lies and statistics
As ever care is required as, for example, these numbers do not cover the (increasing numbers of) self-employed. Also you might after looking at the distribution of UK incomes think that the average number should be above the median! And to be honest I will have to look into that as so do I.
We always need to be careful about treating any statistic whether official or not as a type of gospel truth as they all have their flaws. But from the sequence of numbers above it seems clear that as far as we can tell UK wage growth has remained very weak and real wages continue to fall. In fact any real wage improvement has so far come from the fall in annual consumer inflation. The somewhat Marxist theme that labour is being squeezed whilst capital benefits continues its drumbeat in the background.
Let us hope that this will change but even if we look at other statistics the drummer is hammering out his or her tune.
The income measure of GDP showed that compensation of employees (which includes wages and salaries, as well as social contributions made by employers) grew by 0.2% and the gross operating surplus of corporations grew by 3.8% in Q3 2013.
Ah yes economic growth of 0.8% and wage/salary growth of 0.2%….. A very different type of recovery seems to be in place at a time of “same as it ever was” for housing,trade and credit.