This is an important week for understanding what has been going on within the Northern Ireland economy. We had four surveys released yesterday by NISRA – two on the labour market and two on private sector output. Within them, there was a variety of highs and lows, some of which are positive and some of which are concerning. For the labour market, the two key releases were the monthly Labour Force Survey (LFS) and the Quarterly Employment Survey (QES). The latter is the most closely watched survey of the number of jobs in the economy. Meanwhile the other two surveys shed light on private sector output in the third quarter. These were the Index of Services and the Index of Production (industrial production / manufacturing output). So what do they tell us about the local economy?
- Labour Force Survey – Unemployment down but economic inactivity up
Northern Ireland’s unemployment rate continues to fall with the figure for (Aug-Oct 2017) dipping below 4% (to 3.9%) for the first time since Q2 2008. This is closing in on the all-time low of 3.2% achieved in the summer of 2007 and compares favourably with the UK and Republic of Ireland rates of 4.3% and 6.1% respectively.
But as has been flagged previously, Northern Ireland’s unemployment rate is falling for the wrong reasons. The employment rate has fallen and the economic inactivity rate is rising. The latter hit 29% for the first time in almost 7 years and marks a sharp reversal in fortunes from last summer’s record low. One quarter of men of working-age and one-third of females are currently classed as economically inactive. That is, they are neither in employment or looking for work.
Highlighting Northern Ireland’s low unemployment rate, relative to the UK and most other regions, as a positive has quite a hollow ring to it. Northern Ireland continues to have the highest rate of economic inactivity of all the UK regions and the lowest employment rate. Last year’s progress in achieving a record low in the economic inactivity rate and a record high in the employment rate has proved short-lived. These have both reversed in the wrong direction over the last 12 months or so.
Looking at this in more detail, it is noted that the number of unemployed has fallen by 16,000 to 34,000 over the year to Aug-Oct 2017. Conversely, the number of economically inactive aged 16-64 years of age has risen by 34,000 over the last year. This represents an increase of 11% and economic inactivity is rising at its fastest rate since the depths of the recession in H1 2009. This rising economic inactivity is somewhat concerning.
- Quarterly Employment Survey Q3 2017 – Employers report a buoyant jobs market
The latest Quarterly Employment Survey paints a more positive picture of the labour market with the number of jobs hitting a fresh record high of 752,040 – almost 19,000 above the pre-downturn peak of 733,320 (Q2 2008). After hitting a low in Q4 2011 (691,750), Northern Ireland’s employee jobs surpassed this pre-recession high in Q1 2016. The cumulative net job gains over the last six years stands at over 60,000 jobs (+9%).
This rise conceals contrasting performances between the public and private sectors with the latter driving the overall growth in employee jobs (excludes self-employment). Austerity has seen a significant level of retrenchment in public sector employment with over 16,000 fewer jobs relative to a decade ago. Public sector employment (excluding part-nationalised financial institutions) is back to 2001 levels but appears to have stabilised for the time being.
Private sector employment increased by 2.1% y/y in Q3 with public sector employment up marginally (0.3% y/y). Some 31,000 (+6%) jobs have been added to the private sector since its pre-recession peak in Q2 2008. However, the rise from the post-recession low some 5½- years ago is even more impressive at almost 68,000 or 14%.
At a sector level, manufacturing had a strong performance with the number of jobs rising by > 1,000 q/q in Q3. Despite the closure of JTI in Ballymena, manufacturing employment is back to where it was a decade ago (although output and productivity remain well below 2007 levels). Construction employment has also had a strong showing over the last year (+6.7%) although there was a modest decrease in Q3 (-0.3% q/q). Nevertheless, construction employment remains 26% below where it was a decade ago.
Looking at the various industrial sub-sectors, the fastest growing sector was the ICT sector with year-on-year growth of 8% (+1,540 jobs). The Accommodation & Food Services category (includes hotels & restaurants) posted the largest job gains over the year to Q3 with +2,470 (+5%). Given the record year for tourism this is hardly surprising. It was interesting to note that despite strong demand and growth in Wholesale & Retail Trade in Q3, the sector has lost 4,400 jobs (-3.4%) over the last year. This represents a significant fall and provides an indication of the cost of living squeeze impacting on the domestic consumer (i.e. excluding cross-border retail and tourists).
- Service Sector Output
The index of services provided an upbeat assessment of the largest sector in the Northern Ireland economy. All subsectors of the service industry recorded quarterly gains in Q3. Unlike with employment, however, service sector output is not at a record high and is 4% lower than a decade ago despite 37,000 more people employed in the sector. This highlights the quality of jobs (part-time nature / low wage / low productivity). There was a big rebound in wholesale & retail trade in Q3 following a fall in Q2. Wholesalers and retailers saw sales jump 1.1% q/q which was almost four times the expansion recorded in the UK. Clearly cross-border trade and the tourism boom are having an impact on the sector. Again this is in line with what the Ulster Bank PMI has indicated on recent months.
- Industrial Production / Manufacturing Output – Disappointing but not surprising news on the recent performance of manufacturing output. The closure of the JTI cigarette plant in Ballymena has contributed to a significant slump in output in recent quarters. Manufacturing output is down 10% since the start of the year and is 12% lower than it was a decade ago. By comparison, UK manufacturing output is just 2% below its levels a decade ago. Alongside this, manufacturing productivity has slumped by 14% in 2 years and is at its lowest level since the current series began (in Q1 2005). Closure of the JTI plant has reduced tobacco output in NI to nil. This has impacted on the output of the Food, Drink & Tobacco sector with output down a whopping 18% q/q and 39% y/y. Not surprisingly this represents a record low in the Index of Manufacturing series. Most of the manufacturing sub-sectors posted declines in output in Q3 but there were a few exceptions. Machinery and equipment manufacturing output is at its highest level in over 9 years. Meanwhile the Basic & Fabricated Metals sector has never had higher levels of output.
So it is fair to say that Q3 was a bit of a mixed bag for the private sector. But overall, 2017 seems to be shaping up to be a better year than expected. We await the Q4 figures in due course for that to be confirmed.