Are we there yet? Yeah but no but

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After an economic shock, we tend to closely watch whether a particular indicator has returned to its pre-shock levels over the months and years that follow.  Since the pandemic occurred economists and commentators have been asking “are we there yet?”  Have we returned to pre-pandemic levels? Depending on the frequency of the specific statistic (monthly / quarterly), the benchmark has been pre-March 2020. For quarterly data, Q4 2019 is invariably the timestamp to compare economic progress.

Today’s labour market data dump by NISRA provided a few more ticks on the “are we there yet?” checklist. But there are also some labour market indicators that remain adrift of pre-Covid-19 levels or rates. So, we remain stuck in what could be described as the Vicky Pollard (Yeah but no but) zone.

Just Arrived – The latest batch of data from NISRA’s Labour Force Survey revealed that Northern Ireland’s employment rate – the percentage of working-age population (16-64yrs) in work – hit 74.2% in the three months to April 2023.  That matches its pre-pandemic rate in Q4 2019 and compares with a pandemic low of 70.3%. The rise in the employment rate was due to an increase in employment (both employees and self-employment). Total employment in Feb -Apr 2023 (883,000) finally eclipsed the Q4-2019 level of 876,000. Meanwhile the economic inactivity rate, a measure of the proportion of working-age population neither in work nor looking for work returned to its pre-pandemic level of 25.8% in the latest period.

Already there – NI’s unemployment rate had already returned to its pre-pandemic rate of 2.4% a few months ago and remains at that rate in Feb-Apr 2023. But the number of employees in Northern Ireland, using the Quarterly Employment Survey, returned to its pre-pandemic peak of 780,490 jobs in Q4 2019 by Q4 2021.  Some 50,000 jobs (net gain) have been added in the last two years with a total of 818,840 employee jobs in Q1 2023 (March).

Already there but staying there? The third employment measure for Northern Ireland, HMRC monthly payrolls, also returned to pre-pandemic levels some time ago (June 2021).  It is early days, but HMRC payrolls looks to have peaked in March (790,945) and has fallen by a cumulative 2,500 jobs in April and May (788,444). It is noted that 14 of the 20 subsectors within the HMRC payrolls dataset fell in the month of April (latest available). Creating employment is going to be more difficult going forward given the headwinds of higher interest rates / inflation, increased taxation and public expenditure cuts. Public sector employment has increased by over 8% during the last 5 years (+16,900 jobs) and is approaching a 13-year high. But given the squeeze on Stormont’s finances the public sector, and those sectors reliant on public funding (e.g. community & voluntary sector and construction industry), will not be a source of employment growth.

Still not there yet – Self-employment and total hours worked / average hours worked are the two labour market indicators that have yet to return to pre-pandemic levels. NI’s employment recovery has been flattered by a rise in employee numbers which has been boosted by a rotation out of self-employment. The number of self-employed in NI stood at 103,000 in Feb-Apr 2023. That is 23% below (33,000 fewer workers) pre-pandemic levels (Q4 2019) and remains one of the legacies of the pandemic. Covid-19’s legacy is also evident within the changing nature of NI’s economically inactive. Working From Home and other flexible working arrangements has seen the number of people inactive due to family and caring responsibilities has fallen decrease by 15,000 since Q4 2019.  However, our long-term sickness has increased by 17,000 over the same period. Getting back to pre-pandemic levels of long-term sickness is not expected to happen anytime soon. NI’s record NHS waiting lists is arguably adding to the problem.  

Nearly there – Total hours worked / average hours worked have almost returned to pre-pandemic levels. In Feb-Apr 2023 the total weekly hours worked in NI was 29.0 million, just a shade below Q4 2019’s level of 29.1 million. Total average hours worked stood at 32.9 hours per week in the latest period versus 33.3 hours per week in Q4 2019. This represents a substantial recovery from the low of 27.1 hours per week during the first lockdown in Apr-Jun 2020.

No return to pre-pandemic inflation or interest rates? –   Overall, NISRA’s latest batch of local labour market statistics are encouraging and point to a robust labour market. Near record low unemployment and plenty of employment opportunities. Granted there are some signs that labour demand is softening – For example, HMRC payrolls have fallen in each of the last two months and there were 610 proposed redundancies in May – the highest number in almost two years. Notwithstanding long-term issues such as low productivity, the overall picture of the local labour market is something policymakers would have dreamt about. The issue is the main problems facing the economy lie beyond the labour market. Inflation and higher interest rates are two interconnected sources of pain for the UK and local economy at present. We would love to go back to the pre-pandemic combination of CPI inflation below 2% and Bank Rate at 0.75%.  Instead, we have CPI inflation running at 8.7% y/y (Apr-23) and Bank Rate at 4.5%.  NI’s median earnings for employees may be running at a healthy nominal rate of 5.5% y/y but after adjusting for inflation this represents a significant cut in real terms. Near record low unemployment is little comfort in a cost-of-living crisis. Households would like their energy and food costs and their purchasing power go back to pre-pandemic levels, but this is probably a vain hope. Given that the UK labour market is not weakening sufficiently for the Bank of England’s liking (unemployment rate is falling and wage growth is still accelerating), further interest rate rises are inevitable. Financial markets are currently pricing in Bank Rate to hit 5.5% from November this year and stay there until at least May 2024. A cost of borrowing crisis for many beckons. Are we there yet?

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