Chief Economist’s Weekly Brief – In retreat

We now have a small set of hard economic data covering July. And overall it’s proved reassuring. The UK jobs machine keeps running and we just can’t stop shopping. These are early days still but recession fears are in retreat.

Higher still. Forget the Bake Off, it’s the Great British Jobs Machine we should be watching. The proportion of people in work reached a record 74.5% between April and June. There are 600,000 more people in work than a year ago. And at least for now, there is no sign of any adverse impact from the referendum vote. That would have come from a rise in the number of people claiming unemployment benefits in July. In fact, that number fell.

Brass in pocket. There are signs, too, that UK wage growth is accelerating. Between April and June, the average weekly pay packet grew by 2.4%y/y. That’s hardly stellar but it was the fastest pace since October last year. With prices rising at just 0.4% in Q2, workers have had a decent boost to their spending power.

Stable. Northern Ireland’s jobs recovery has been less impressive. Employment fell slightly in Q2, though that is down from its recent record high.  The unemployment trends are more encouraging. Another 600 fell off the register last month bringing the annual decline to almost 7,000 and taking it to its lowest level since November 2008. The wider measure of unemployment continues its downward trajectory too – from 55k in Q1 to 53k in Q2 with the corresponding unemployment rates falling from 6.2% to 6.0%. Still some daylight remains relative to the UK rate of 4.9%. NI’s rate has remained relatively stable over the last 2½ years, averaging 6.4% in 2014, 6.1% in 2015 and 6.1% in H1 2016. Has this rate bottomed?  Time will tell.

Spend, spend, spend! It looks as if the whole of the UK spent July at the shops or buying online. Retail sales volumes were up a staggering 5.9%y/y and by 1.4% compared with June. A series of surveys since the referendum had told us that consumer confidence had been holed below the water line. Well, if that’s the case, the nation has responded in a pretty unusual manner. Falling shop prices – down 2.0%y/y – certainly helped. But the amount of cash we spent was still up 3.6%y/y and 1.6% on the month. Unless it’s comfort shopping, we seem to have shrugged off Brexit fears, at least for now.

3 million and counting –  Last week’s tourism figures revealed the number overnight trips, nights and money spent in Northern Ireland (excluding Northern Ireland residents) all rose in the latest financial year (2015/16). However, visitor numbers from the Republic of Ireland posted double-digit declines.  The strength of sterling was clearly a factor during this period. These figures are quite dated. Following the Brexit vote sterling has been on the slide – down 12% against the dollar and the euro. This should act as a major tailwind for visitor numbers in 2016/17 though we won’t get these figures until August 2017. Meanwhile Titanic Belfast passed another milestone as last week it welcomed its 3 millionth visitor.

£50 shades of grey. It’s taken nearly 10 years but household incomes have finally made it back to pre-crisis levels. Well almost. Average disposable income in 2015/16 was £31,920, 3% higher than in 2014/15 and touching the £32,044 reached in 2006/7. But strong currents lie below the surface. Whereas incomes for non-retired households are 1% lower than they were a decade ago, the average disposable income for retired households is up 14%. Ignore the grey pound at your peril.

Waiting. Consumer price inflation edged up in July but at 0.6%y/y it remains well below target. While sterling’s depreciation will cause faster prices rises in future as imports become more expensive there is no sign of that effect materialising yet. In fact, the items that made the biggest contributions to inflation last month are those that least use imports. But the first hints of higher inflation are apparent in producer prices. Imported food, metals and equipment all helped the prices paid by producers to rise by 4.3% in July, the first y/y increase since 2013.

Worth it. What’s the UK economy worth? Most people think of GDP, but that’s more a measure of income rather than wealth. Instead the Office for National Statistics has tried to work out the value of all the assets in the UK. Strip out our debts and our net worth is a reassuringly large number, £8.8 trillion, or £327,000 for every household. An impressive 62% of this is our homes. It wasn’t always thus. Back in 1995 the UK housing stock was worth roughly a fifth of what it is now. The other big move, unfortunately in a downward direction, has been in the net worth of central Government. We’ve increased our debt by £1.2 trillion since 2007. It’s a number that’s set to rise.

Stay tuned. A third of the way through the fiscal year and so far we’ve borrowed £24bn, down £3bn from last year. Not bad, but hopes were that borrowing would be £20bn lower this year, leaving £17bn to go to meet the target. However, the new Chancellor is expected to slow the pace of deficit reduction. By how much depends on the economy. Big tax and spending decisions now hinge on what happens over the next three months.

Weary. July’s eurozone inflation was confirmed as 0.2%y/y, too low for the European Central Bank’s comfort. But not to worry, it’s on the case, albeit in its usual pondering manner. The minutes of last month’s meeting reveal growing concerns about the path of growth and inflation. An extension of, and some tweaks to, its QE programme are potential responses.

Itchy trigger finger. The US central bank also released the minutes of last month’s meeting. They signalled a bit of division on when to trigger the next rate hike. Some Fed members advocated an immediate hike while others were more cautious. Meanwhile the inflation figures reveal little to be worried about, as has consistently been the case in recent years. The core inflation reading was just 2.2%y/y for July while the Fed’s preferred core measure reads 1.6% – below the 20 year average.

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