In contrast with weakness in the Eurozone the US labour market is still in rude health. November employment gains surpassed expectations by a wide margin, despite global trade and economic uncertainty. This will provide relief to the Fed, which has signalled it will pause before it provides any more stimulus to the economy.
Today sees the release of November data from the Ulster Bank Northern Ireland PMI. The latest report – produced for Ulster Bank by IHS Markit – pointed to sharper declines in output and new orders at Northern Ireland companies, as Brexit uncertainty continued to weigh on activity. Employment also decreased, albeit at a relatively modest pace. Meanwhile, the rate of input cost inflation remained marked, but efforts to stimulate sales led companies to raise their selling prices at only a marginal pace.
November and December are traditionally the two quietest months of the year for new car sales. Last month’s sales were down almost 3% on the corresponding period in 2018. This continues the general downward trend in car sales since early to mid-2016. Looking at new car registrations year-to-date, sales fell by 2.7% during the eleven months to November to 49,457. That’s 125 fewer car sales per month relative to last year. Indeed, the latest SMMT statistics represent the weakest sales figures in seven years.
Governor of the Bank of England Mark Carney has been appointed United Nations Special Envoy for Climate Action and Finance (after his term ends on 31 January). Meanwhile European Central Bank President Lagarde is pushing for climate change to be part of a strategic review of its purpose. A need for public spending to assist the transition to net-zero emissions, and economies in need of spending to boost meagre growth. Hmmmm. Seems there might be a deal to be struck. Now we just need governments to warm to the idea.
Times, they are a changin’. Global trade is stagnating and is dragging down economic activity in almost all major economies. OECD’s downward revision of global growth forecast to 2.9% in 2020 is thus hardly surprising. Contrast that with 3.5% growth in 2018. Policy uncertainty is undermining investment and future jobs and incomes. The OECD’s prescription is structural reforms and bold public investment to raise long-term growth, such as spending on infrastructure to support digitalisation and climate change. However, large downward risks to future growth persist.
Past its peak? Q3’s labour market headlines suggested that the UK’s record breaking run is coming to an end. But some lesser spotted statistics are still revealing figures not seen before. Working households (where all adults work and ex. students) appear to have maxed out at 60% of all households. The proportion of workless households eased to a fresh low of 13.2%. Fewer than 1 in 11 children now live in households were no adults work. Again another record low. That compares with more than 1 in 10 at the last General Election and more than 1 in 6 when austerity began in 2010.
Sceptical. A lot of promises of a brighter future have been made in this General Election campaign. So far, the electorate appear unconvinced that these will lead to any real improvement in the economy. The headline consumer confidence index refused to budge from a six year low of -14 in November. It’s now almost four years since this measure was last in positive territory. Consumers remain very downbeat on prospects for the general economy, but feel better when it comes to their personal finances, which should be enough to keep the tills ringing through the festive season.
Bargain hunting. Shoppers might be focused on the Black Friday / Cyber Monday sales but they’re hoovering up cheap deals in the mortgage market, too. Average interest rate on new mortgages in October was close to its all time low, coming in at 1.96%. That rate is just 4bps higher than the trough reached two years ago in October 2017. A lot has changed in that time, in particular the Bank of England base rate has been raised twice from 0.25% to 0.75%. As a result, 5% more people remortgaged last month, compared with a year ago, despite an otherwise slowing housing market.
Two out of three ain’t bad. An increasing number of local households are availing of attractive interest rates whether to purchase a home or simply refinance to a better deal. Remortgage activity in Northern Ireland during the first nine-months of the year is up almost one-fifth relative to the same period in 2018. That compares with a 1% y/y decline for the UK market as a whole. Meanwhile with one-quarter of the year remaining, 2019 looks set to mark a 15-year high for the first-time buyer market. The one segment of the local mortgage market not growing is loans for home-movers. The legacy of negative equity, or just lack of sufficient equity, has blighted this part of the market for the last decade.
Add to basket. It should be no surprise to hear e-commerce sales have been on a tear. UK non-financial businesses have seen their sales rise from just over £500bn in 2016 to a little under £700bn in 2018, that’s about £1.9bn a day. And it’s been accelerating, 2018’s rise was the fastest since comparable records began in 2014. Naturally it’s taking up a larger share of firms’ turnover – 18.4% in 2018, up 1.8 pp from 2017. The larger the business, the more likely it is to make e-commerce sales (47% of businesses with 1,000 or more employees, compared with 12% to firms with sub-10 employees).
New arrivals. Many things have changed since June 2016. One of them is the attractiveness of the UK for EU citizens. Since 2016 UK net migration has been on a downward trend and in the year ending June 2019 an estimated 212,000 more people came to the UK than left, down from 311,000 in the year ending June 2016. Most of this reduction is due to falling EU net migration, while non-EU net migration continued its six-year trend of gradually increasing.
Mildly encouraging. Euro area inflation moved up to 1.0% y/y in November compared to 0.7% y/y in October. The core rate also surprised on the upside in November, rising 1.3% y/y vs 1.1% y/y in October – the third consecutive monthly rise and a seven month high. All major components of inflation saw rises in the year to November, led by service sector prices. The exception was oil prices, which flat-lined. Still, with business confidence low, it is difficult to envisage a sustained build-up in price pressures in coming months. The ECB’s 2% inflation target is unlikely to be breached any time soon.
Modest. Allaying some of the fears over a slowing US, growth for Q3 was revised up a notch to 2.1% compared to 1.9% as initially estimated. Consumer spending played a central role while monthly data for October showed it remained steady in the early part of Q4, growing 0.3% from the previous month. But decent spending and a still strong labour market are not putting upward pressure on prices. The Fed’s preferred measure of inflation rate remained at 1.6% y/y, lower than the target of 2%. Can momentum be sustained through Q4? It will depend on continued consumer resilience and whether tentative signs of business investment improving can be sustained.
Two out of three categories of mortgage activity (first-time buyer, home mover and remortgage) posted faster rates of annual growth in Northern Ireland relative to the UK. However, these three segments of the mortgage market are moving at three different speeds.
If we consider politics over the past 10 years or so, what is clear is that there was a distinct step to the right in the UK, in the US and elsewhere in the world; the consensus around dealing with the fall-out of the financial crisis taking us in that direction. But there is evidence that we are now set for something of a left turn. And a look at the policies coming from the main UK political parties ahead of the General Election gives credence to this view.
As the General Election campaign gets under way, three main parties revealed their manifestos last week. All of them promise a lot more public investment, especially Labour which intends to almost double the current level. Whoever wins, the economy can look forward to greater support from government spending.
Both Germany and the UK escaped recession, figures last week showed. But both have reason to be concerned about their near-term outlook. UK election campaigning suggests either a (i) large or (ii) enormous dollop of government spending is coming. Germany could do with either.
Today’s batch of housing market figures for the third quarter could be summed up as “two up two down”. Two indicators (residential property prices and house completions) posted year-on-year growth. Meanwhile housing starts and the number of residential property transactions are on the wane.
Generation rent. House prices are always one of the most closely watched economic indicators by the general public or at least homeowners and potential first-time buyers. Although the rise of the private rented sector over the last decade means for an increasing share of society, rental prices are more relevant than house prices. Homeownership is not on the radar for as many under 40s as it once was.
Northern Ireland’s Labour Force Survey (LFS) churned out more record highs and lows of the positive variety in Q3 2019. However, looking through all the statistical noise there are still signs that suggest the labour market cycle has turned. A surge in self-employment has been accompanied by a reduction in the number of ‘employees’ working. Meanwhile the total number of hours worked and average hours worked has eased back from its highs earlier in the year. Given the marked deterioration in business conditions in Q3 and Q4 it is expected that this will increasingly become evident within the labour market in the coming quarters. Q2 2019 is still likely to have represented the peak in the total number of employee jobs as measured in the Quarterly Employment Survey.