Jobs growth but at what price ...

Fears of a slow down are misplaced, according to latest jobs data. The ONS released the latest UK Labour Market data for the month of May this week. 32.01 million people were in work, up by 324,000 on a year earlier. 1.49 million people were unemployed down by 152,000 in the same period last year. The unemployment rate fell to 4.5% from 4.9% a year earlier. This is the lowest number since 1975, below the peak immediately prior to the slow down in February 2008.

The employment rate (the proportion of people aged from 16 to 64 who were in work) was 74.9%, the highest since comparable records began in 1971. There were almost 800,000 vacancies in the economy. Vacancies were evident in manufacturing, construction and the service sector. So what's the problem?

The problem is pay. Earnings increased by just 1.8% in May, compared to an increase of almost 3% in the final quarter of last year. Public sector wages were slightly ahead of private sector pay. Remuneration in manufacturing and construction slumped. Policy makers are at a loss to understand the anomaly. Strong jobs growth should lead to pressure in recruitment and an increase in earnings. Rising inflation should put additional pressure on wage settlements. Real earnings fell by -0.9% as CPI inflation hit 2.7%. There are real fears, the squeeze in household income will lead to slowdown in spending, domestic demand and growth in the economy.

How can we explain the dichotomy? Productivity? Low levels of investment? The Gig Economy? Zero hours contracts? Public sector austerity? Job insecurity? Fears for growth? The situation is not unique to the UK. The US faces the same challenge of a lower rate of growth with subdued inflation, jobs growth and low rates of pay.

The common factor in the US and the UK, is life on Planet ZIRP. One day we will realise low rates may be the problem. Rising base rates and a mortgage income squeeze are inescapable in pressuring household incomes. Low rates of productivity and real incomes may just be a phenomenon of life on Planet ZIRP. Problems for savers, pressure on pensions? It is time to end the central bank experiment and follow the Fed escape route ...

Brexit fears top CFO concerns ...
Concerns about trade prompted the CBI to make the transition call on Brexit last week. Deloitte published the latest CFO survey for the second quarter of 2017 this week. Business confidence among Finance Directors and CFOs took a hit post election. Many must have shed a tear along with the Prime Minister as the result came in. More uncertainty, a hung parliament and the prospect of another election ere too long, would have tested the board room resolve of many.

Political uncertainty and the effects of Brexit are weighing on sentiment. Reality is dawning as Brexit looms. 72% of CFOs expect some negative effect on their business as a result of Brexit, compared to 60% in the first quarter of the year. Fears for growth in the economy this year also features in the second quarter survey. Risk appetites are lower and the appetite for expansion is depleted. Investment, recruitment and discretionary spending will be hit.

The apparent lack of direction in government policy is a further cause for concern. The reality is dawning ... there is no business case and no economics case to leave the EU. Payments to the EU may continue, the ECJ may rule the Tory back benches. The timeline for critical investment decisions in key industries is approaching. Many businesses are hoping Brexit won't actually mean Brexit after all, some wake up in the morning still hoping it was all a bad dream …

The week in markets ...
Markets rallied as weak US inflation data suggested the Fed may hold back on rates. Sterling rallied against the Euro and the Pound. Gold and oil prices were up ... gilt yields increased in the UK and Europe, softening in the US and Japan ...
John
That's all for this week. Have a great week-end ... Don't Miss the Economics Conference on the 13th October. Our theme is the Economics of Greater Manchester. We will be talking about the Inclusive Growth Challenge, Balancing the Books and the Sectors Driving Growth in the City Region! Another Great Conference in the pro-manchester series ... Book Now Don't Miss Out ...

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