The pace of UK economic data releases is relentless at this time of the month as we have several “theme” days. Officially they are to highlight areas but in fact the role is to hope that any bad data is quickly replaced by good and also to swamp us with too much information. For example UK trade is worth a day on its own but rather conveniently tends to get ignored on GDP day. This morning brings the labour market which is in crisis and I shall first look at the numbers which are providing some insight and then move onto the ones which are failing us.
We have been both fearing and expecting a drop here and sadly that has arrived.
Growth in average total pay (including bonuses) among employees slowed sharply in March to May to be negative (at negative 0.3%) for the first time since April to June 2014; regular pay growth (excluding bonuses) slowed to 0.7%.
As you can see total pay has been dragged into negative territory by quite a plunge in bonuses, which is hardly a surprise in the circumstances. This means that those who concentrate on regular pay are missing the bus. Whereas we note that bonuses have gone -2.3%, -15.4% and then -23.5% in the latest 3 months. Weekly bonuses started the year at £34 in January but were only £25 in May.
This means that the wages growth we were happy to see this time last year has gone like this.
The rate of growth has been slowing since April to June 2019, when it stood at 4.0% for total pay and 3.9% for regular pay, the highest nominal pay growth rates since 2008. It had slowed to 2.9% in December 2019 to February 2020 immediately prior to the coronavirus (COVID-19) pandemic.
It was slowing anyway but now someone has stamped on the brakes.
We do get a breakdown for the last year as we see the public sector did much better than construction which is a shift as I recall it being the other way not so long ago.
Between March to May 2019 and March to May 2020, average pay growth varied by industry sector (Figure 3). The public sector saw the highest estimated growth, at 3.8% for regular pay, while negative growth was seen in the construction sector, estimated at negative 5.4%, the wholesaling, retailing, hotels and restaurants sector, estimated at negative 2.1%, and the manufacturing sector, estimated at negative 1.6%.
Have you noticed how the official release concentrates on the better regular pay series in the same way we are presented CPIH inflation? Let me help out by pointing out that in May the public-sector did even better for total pay growing by 4.8% on a year before. Whilst weekly bonuses have fallen there they are small ( £3 to £2). Construction total wages have fallen by 9.8% on May last year driven by a fall in bonuses from £30 to £19. Quite a shift to say the least.
Did Furlough Impact This?
Yes as you can see below 60% of those on furlough were only on it so 80% of previous wages.
The Office for National Statistics (ONS) has published estimates of approximately 30% of employees being furloughed in the last two weeks of May, and a little over 40% of furloughed employees having their pay topped-up above the 80% pay received under CJRS ( Coronavirus Job Retention Scheme)
This pulled pay lower.
The combined impact of this is a downward drag of a little over 3%.
So we are now at 169 on the total wages index compared to the recent peak of 174.2 in January
Here are the official numbers.
In real terms, total pay growth for March to May was negative 1.3% (that is, nominal total pay grew slower than inflation); regular pay growth was negative 0.2%, the difference being driven by subdued bonuses in recent months.
They have a favourable inflation number ( CPIH) but the impact of that is lower right now. There is of course the caveat that the inflation numbers are missing quite a bit of data due to the pandemic.
The perspective is this and the last sentence does some heavy lifting here.
For May 2020, average regular pay, before tax and other deductions, for employees in Great Britain was estimated at £504 per week in nominal terms. The figure in real terms (constant 2015 prices) fell to £466 per week in May, after reaching £473 per week in December 2019, with pay in real terms back at the same level as it was in March 2019.
Pay in real terms is still below its level before the 2008 economic downturn.
As it slips their mind to do this let me help out using total pay and indexing to 2015 Pounds. The previous peak of February 2008 of £522 per week seems a statistical aberration so you can either use it or the £507 of May 2008 to compare to the £490 of this May, and yes this is flattered by the woeful inflation number used. A lost decade of twelve years and counting…..
Thirty years of hurt
Never stopped me dreaming ( Three Lions)
However not everyone is losing and thank you to Lynn Lewis and Ben McLannahan for this.
pay at @GoldmanSachs up by almost a fifth in H1
Time to remind ourselves of this one more time.
The first thing you need to know about Goldman Sachs is that it’s everywhere. The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. ( Matt Taibbi)
So having sorted out the price of work how much was actually taking place? The best guide comes below.
Between March to May 2019 and March to May 2020, total actual weekly hours worked in the UK decreased by 175.3 million, or 16.7%, to 877.1 million hours (Figure 4). This was the largest annual decrease since estimates began in 1971, with total hours dropping to its lowest level since May to July 1997……..Average actual weekly hours fell by a record 5.5 hours on the year to a record low of 26.6 hours.
Indeed even this is an understatement it would seem
Experimental work with adjusted methodology suggests the use of the existing methodology has understated the reduction in the actual numbers of hours worked by approximately 5% to 6%
So the real fall looks to be of the order of 22%.
Another perspective is provided by the analysis of the Pay As You Earn ( how many are paying tax) figures.
In June 2020, 74,000 fewer people were in paid employment when compared with May 2020 and 649,000 fewer people were in paid employment when compared with March 2020.
We see that the wages situation is grim with both nominal and real wages falling again. That means that the journey to the previous peak looks ever longer. A more positive view is that there is a small flicker in the May figures so there may be signs of a recovery from the lows. On the other side is the furlough scheme which in a broad sweep is responsible for the wages drop in return for keeping people employed. When it ends though we will see unemployment rise and whilst some will return on normal wages we have already seen wage cuts applied. I expect more of them.
“Following intensive negotiations between Balpa and Ryanair a package of cost savings was put together,” Balpa said. “Pilots have agreed to accept a 20% pay reduction in order to save 260 of the jobs that were at risk, ( The Guardian)
Shifting back to conventional measures they are failing us as you can see.
The UK employment rate was estimated at 76.4%, 0.3 percentage points higher than a year earlier but 0.2 percentage points down on the previous quarter.
Really? Still at least we avoided a form of La Dolce Vita where unemployment supposedly fall, but even so this is hopeless.
The UK unemployment rate was estimated at 3.9%, 0.1 percentage points higher than a year earlier but largely unchanged compared with the previous quarter.
The Investing Channel