Today brings us to an area of the UK economy where the trend has remained positive and frankly amazingly so. Regular readers will be aware that back in the “triple-dip” ( hat tip to Stephanie Flanders then of the BBC now of Bloomberg for the phrase) days of 2011/12 that the employment data moved first and was followed by GDP in 2013. Thus employment trends have become something of a leading indicator as again we face a phase where they tell us one thing whereas other signals head south.

An example of other signals was seen only yesterday.

Much could be made of the adverse impact on April’s footfall of Easter shifting to March, but even looking at March and April together – so smoothing this out – still demonstrates that footfall has plummeted.  A -3.3% drop in April, following on from -6% in March, resulted in an unprecedented drop of -4.8% over the two months. (Springboard)

They then made a somewhat chilling comparison and the emphasis is mine.

 Not since the depths of recession in 2009, has footfall over March and April declined to such a degree, and even then the drop was less severe at -3.8%.

This added to this from KPMG a few days before.

April’s figures show retail sales growth falling off a cliff, with sales down -3.1 per cent on last year, but we must exercise caution and remember that the timing of Easter makes meaningful month-on-month comparisons difficult. That said, the three-month average is more helpful to assess, but this too points to sales only growing modestly

As you can see there are poor numbers there but two factors are at play. Firstly there is the impact of the period we have been through where real wages fell and I mean that in two senses. We have seen a recent dip which we have at best only begun to emerge from backing up an overall fall which again depends how you measure it but is more than 5%. Next is the decline of the high street which if the ones by me are any guide is ongoing.

Germany

Another signal of a slow down that is much wider than in the UK was seen earlier as Germany reported this.

The Federal Statistical Office (Destatis) also reports that the gross domestic product (GDP) increased 0.3% – upon price, seasonal and calendar adjustment – in the first quarter of 2018 compared with the fourth quarter of 2017.

For perspective there is also this.

This is the 15th quarter-on-quarter growth in a row, contributing to the longest upswing phase since 1991. Last year, there were higher GDP growth rates (+0.7% in the third quarter and +0.6% in the fourth quarter of 2017).

So the slow down is much more than just the UK and we will have to see what develops next. I would remind you of yesterday’s subject which was hints of a fiscal stimulus in the Euro area as it becomes clearer why that might be doing the rounds. Also as I had started with leading indicators I am afraid it is yet another bad day for the Markit business surveys or PMIs which told us this in January.

“If this level is maintained over February and March,
the PMI is indicating that first quarter GDP would rise
by approximately 1.0% quarter-on-quarter”

That was for the Euro area and Germany had a higher reading so for them to have been right the German economy shrank in February and March.

UK Real Wages

There are signs of trouble here so let us go straight to the numbers.

Latest estimates show that average weekly earnings for employees in Great Britain in nominal terms (that is, not adjusted for price inflation) increased by 2.9% excluding bonuses, and by 2.6% including bonuses, compared with a year earlier.

In the rather odd world of Mark Carney and the Bank of England those are excellent figures especially if you look at the March figures alone which showed 3% growth on a year before. Let us continue on that sort of theme for a moment.

Latest estimates show that average weekly earnings for employees in Great Britain in real terms (that is, adjusted for price inflation) increased by 0.4% excluding bonuses, but were unchanged including bonuses, compared with a year earlier.

This has been copied and pasted across the media as showing real wage growth yet that is somewhat misleading. This is because if you actually look at what people get in they pay packets March actually showed a slowing to an annual rate of 2.3%. Now at absolute best the UK inflation rate was 2.3% according to the CPIH measure but that of course relies on imputed rents to bring it down from the 2.5% of CPI and is lower than the 3.3% of the RPI. According to the official data which you have to look up as it is not ready for copy and pasting real wages fell by 0.1% on the most friendly measure which is using CPIH.

Let me put this another way UK single month wage growth has now gone 3.1%, 2.8%, 2.6% and now 2.3%. I will not insult you by pointing out the trend here but will show you how this is being reported with the one strand of hope being that February has been revised up by 0.3% and fingers crossed for March on that front. From @katie_martin_fx

ING: “Rising UK wage growth points to summer rate hike”

Meanwhile the back picture is along the lines of this.

Actually it is worse than that in the longer-term because for some reason they use an inflation measure with imputed rents in it ( CPIH) which lowers the numbers. Secondly they are using regular pay which as I have explained above flatters wage growth at the moment.

Employment

This is the ying to the yang above as the numbers remain very good.

There were 32.34 million people in work, 197,000 more than for October to December 2017 and 396,000 more than for a year earlier………..Between October to December 2017 and January to March 2018, total hours worked per week increased by 6.6 million to 1.03 billion.

There was a dip at the opening of this year in hours worked per person but that may be the ides of March. However there was further credence to the view that the productivity issue is being measured badly and is often just the flipside of employment growth especially when GDP growth is low.

Output per hour – The Office for National Statistics’ (ONS’) main measure of labour productivity – decreased by 0.5% in Quarter 1 (Jan to March) 2018.

Comment

As you can see the strong employment growth seen in the UK for some time has fed into strong wages growth which meant that the Bank of England raised interest-rates in May. Oh hang on………

Sorry there must have been some strands of the Matrix style blue pill in my tea this morning. Returning to reality the UK’s employment numbers are excellent and the improvement as in fall in unemployment has continued. But the simple truth is that the wages data relies on two types of cherry-picking to also be good. Firstly you have to ignore what people actually get and concentrate on regular pay which may seem sensible at the Bank of England as on its performance bonuses must be thin on the ground but many rely on them. Next you have to use the lowest measure of inflation you can find which relies on fantasy rents and except for this purpose is usually roundly ignored.

I hope the number for March is revised higher and we can expect some pick-up in public-sector pay but as we stand total pay growth is seems to be following the lower inflation data. Also there is the issue of whether European economies pick up after a slower first quarter for 2018.