Yesterday brought some excellent news for the UK economy and it came from the monthly Gross Domestic Product (GDP) update from the National Institute for Economic and Social Research. As it represents a landmark and a significant change let us get straight to it.
The continuation of robust economic performance implied by these estimates suggests that the level of UK GDP has now surpassed it pre-recession peak (January 2008), by approximately 0.2 per cent.
So finally we have scaled or rather re-scaled that peak, at least according to the NIESR, and very welcome it is! A bit like today’s warm sunny weather in London we can bask in it for at least a little while. Added to this the current rate of growth remains strong.
Our monthly estimates of GDP suggest that output grew by 0.9 per cent in the three months ending in May after growth of 1.1 per cent in the three months ending in April 2014.
The glass half-full element here is that this is strong growth and I note that April was revised upwards from an already strong 1%. There is a minor glass half-empty element from the dip to 0.9% also. But we are left with another strong report for the UK economy which followed other positive news yesterday. Happy Days indeed.
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The issue here is the length of time this has taken us. If we look back to previous depressions (defined as a sustained period taken to reach the preceding peak) from the last century we see that this has been the slowest recovery. Usually it takes around 4 years in an interesting convergence but this time it has taken more than six years.
Also as we have discussed before on here we know that the UK population has been growing over this period, although the truth is that everybody is unsure by how much it has grown! The official data shows it growing from 62.8 million in 2010 to 63.7 million in 2012 but as the 2010 numbers themselves were revised up by 497,500 I would suggest that we only really get a general clue.
The labour market
Let me start with the good part of today’s UK data and as so often we find positive news in the quantity section of our labour market report.
There were 30.54 million people in work, 345,000 more than for November 2013 to January 2014 and 780,000 more than a year earlier.
Total hours worked per week were 981.6 million for February to April 2014. This was: up 14.1 million (1.5%) from November 2013 to January 2014, and up 31.1 million (3.3%) on a year earlier.
So we can see that the quantity measures were strong. There is still a strong growth in self-employment (7.4% over the past year) which raises concerns but full-time employment rose too (1.7% over the past year). The effect of this is a continuing very welcome fall in unemployment levels.
There were 2.16 million unemployed people, 161,000 fewer than for November 2013 to January 2014 and 347,000 fewer than a year earlier.
The unemployment rate was 6.6% of the economically active population (those in work plus those seeking and available to work), down from 7.2% for November 2013 to January 2014 and down from 7.8% a year earlier.
So we have issues over the rationale behind the rise in self-employment but the quantity numbers shown here are very good. They will look even better if the single month April unemployment rate estimate of 6.4% is the harbinger of further improvements.
What about wages?
This was always going to be an awkward month for annual comparisons as April 2013 was boosted by bonus payments which were dodging the 50% income tax rate. I checked the numbers for bonuses last night and at the opening of 2013 they went £27, £25, £25 and then £47 per week. Anybody spot a blip?!
So let us take a look of today’s data in the light of that warning.
For February to April 2014, total pay for employees in Great Britain was 0.7% higher than a year earlier while regular pay was 0.9% higher.
So we find oursleves figuratively speaking back in the bad old days of very little wage growth at all. In fact April itself was much worse as I had feared. If we look back to April 2013 then total weekly earnings were £486 and this April they were £478 for a drop of 1.7%. We can try to edit this out by looking back to April 2012 but we see that total weekly earnings were £466 back then so they are now 2.6% higher which does not offer much reassurance.
Regular pay disappoints too
If one takes the view that the bonus series was distorted last year then one may look at regular pay for a clearer view of trends. The problem is that it looks as if its growth is nascent and weak which is very different to the quantity measures above. The headline growth rate was poor and if look at April alone we see that regular pay was only 0.4% above that of April 2013 so there are fears here of a slow down rather than the hoped for acceleration. This is reinforced by comparing regular pay in January -£450 per week- with April’s £449 because there is no way of avoiding that again contrary to our hopes it is lower.
Indeed the April annual growth rate for regular pay of 0.4% was the lowest in this series which goes back to January 2001. Not quite a recovery and growth mantra is it? As ever we should take care with data for a single month but the truth is that the regular pay series looks weak overall.
What about real wages?
This looks set to be something of a bloodbath as we check the inflation numbers.
The Consumer Prices Index (CPI) grew by 1.8% in the year to April 2014,
The Retail Prices Index (not a National Statistic) grew by 2.5% in the year ending April 2014,
With the decline in respect for official statistics the “(not a National Statistic)” moniker is backfiring in my opinion and is likely to be more of a badge of honour.
If we look at the regular pay series – due to the bonus distortions – we see that real wages fell against the headline rise by either 0.9% or 1.6% depending on the inflation measure. Even worse are the numbers for the single month of April showing falls of 1.4% and 2.1% respectively. Some recovery!
Can one both welcome and be worried by the same data release? It appears that we can as the divergence between quantity labour market measures and price is persisting well into what we are regarding as a recovery. I think we may have to revise how we define an economic recovery! For the moment it looks as though the employment and hours worked rises are coming without anything like the sort of wages rises that were once regarded as normal. Indeed if today’s numbers are any guide we may even be seeing wage rises declining into a recovery. Looking back if we take out the 2009 plummet the current start to the year looks as weak as any and for example is worse than 2011 and not that dissimilar to 2012.
If we wish for a more optimistic sheen we need to go to the private-sector forecasters. It was only on Friday that KPMG/REC told us this.
Further strong rise in permanent salaries, while temp pay growth accelerates.
starting salaries continue to rise,
If you want a clear contradiction to the official data they felt that April saw an 81 month high in growth rates for permanent salaries. Added to this Markit told us this was happening in the service sector last Wednesday.
Operating costs up amid reports of higher wages
several UK service providers noted an increase in their average wage costs during May.
Now the latter quote is after April but does illustrate two wildly different pictures of what is going on. As Rudyard Kipling put it.
East is East, and West is West, and never the twain shall meet,
Till Earth and Sky stand presently at God’s great Judgment Seat;
Let us hope we will not have to wait that long! But someone has to end up with egg on their face here.
As a final thought any chance of a base rate rise from the Bank of England just vanished from view until the pattern for wages looks better.
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