Chief Economist’s Weekly Briefing – Bumper year?

As the report card on opening up improves, so does the growth estimate for 2021. The latest to join the bandwagon is the Bank of England which is now forecasting the UK economy to enjoy the fastest growth since the Second World War. That will pull the Northern Ireland economy up too. The Chancellor also expects the recovery to be ‘turbo-charged’ by the excess savings of households and firms.

The Bank of England, City of London, UK, at night
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Fall in furlough but bigger fall to come

Comment on today’s HMRC update for the number of jobs furloughed in Northern Ireland as of 31 March 2021. 

Northern Ireland’s unemployment rate has been kept artificially low due to the arrival of the Coronavirus Job Retention Scheme (JRS) last year. The latest HMRC figures released this morning revealed that there were 99,400 jobs on furlough on 31st March 2021. That represented the first dip below 100,000 this year and a fall of 9,200 (-8%) relative to the end of February (108,600). Over two-thirds of these jobs were fully furloughed with the remainder partially furloughed. At the start of July 2020 there were a total of 139,100 jobs on furlough. This fell to a post-lockdown low of 65,100 at the end of September. The extension of the JRS and a return to lockdown saw the number of furloughed employments rise to a lower secondary peak of 117,700 in mid-January 2021.   

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Treat mega growth rates with a mega pinch of salt

May has already brought with it April showers and some weather warnings. The first week of May has brought in the first economic data for April and we should brace ourselves for some startling year-on-year growth rates for April and for Q2 in due course.  Two indicators worth watching concern residential property transactions and new car sales.  

Today’s SMMT new car sales for April confirmed that UK new car sales increased by 3,177% year-on-year last month.  But this growth rate paled into insignificance relative to the 13,629% year-on-year rise for the Northern Ireland new car market. Context is everything here.  The huge increase is a reflection of how bad April 2020 was rather than how strong activity is this year. This is what economists call ‘base effects’ in this case rebounding off an extremely low base. For example, there were just 24 cars sold last April during the first full month of lockdown. That represented a 99.4% y/y decline on the previous year. Despite a near 14,000% y/y in April 2021, last month’s sales of 3,295 new car sales were still disappointing. Local dealers sold 20% fewer new cars in April 2021 than they sold on average each April during the decade before COVID-19 struck. Indeed, last month’s car sales figures represent the second worst April on record. 

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Chief Economist’s Weekly Briefing – Stimulus windfall delivers

The US economy bounced back sharply in Q1 thanks to a successful vaccination drive and in particular generous government support. The latter meant personal income in the US posted its biggest ever increase in March (a series that goes back to the 1940s!). That’s what you call shock therapy for the recovery. And Northern Ireland’s non-essential retail finally reopened its doors which coincided with news that every adult over the age of 18 will receive a £100 High Street voucher later this year.  

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Like Brewster, NI’s millions must secure long-term legacy

In the 1985 film Brewster’s Millions, Richard Pryor’s character is left a £300 million fortune. Provided Monty Brewster meets the challenge of blowing $30 million in 30 days he can keep the whole estate. Simply giving the money away though is forbidden and there are limits on gambling and donating to charity. The lead character embarks on a spending spree and fulfils the conditions of the will, therefore inheriting the lot.

Will we see a Brewster style spending spree in the global economy in the months ahead? Some think so. Over $5 trillion dollars of savings have been stockpiled by consumers around the world with household savings rates in many countries reaching century highs. As lockdown restrictions ease the expectation is that we will see a strong rebound in consumer spending from two sources. First, pent-up demand will be unleashed as spending patterns normalise. And second, we should see an unwinding of the forced savings squirreled away during lockdown. This boost in consumer spending, which accounts for around three-quarters of Northern Ireland GDP, will fuel an economic recovery globally, nationally and locally. 

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Bumper month for property market in March

Boom times are back? March has been a bumper month for property transactions with local estate agents experiencing sales volumes not seen since 2007/08. Unlike the last property boom, the surge in activity is largely catch-up from the lockdown-induced record slump in Q2 last year (-67% y/y). The pent-up demand has been boosted by fresh demand from outside of Northern Ireland stemming from the post-COVID-19 opportunities of working from home. A temporary reduction in the stamp duty land tax has also provided an added incentive for the more expensive and typically larger properties.

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Even hospitality firms turning on recruitment taps… but furlough end will see unemployment surge

2020 witnessed the fastest and deepest recession on record. But unlike output, the labour market has not followed the usual recession playbook. Unprecedented employment support has kept unemployment surprisingly low. Indeed, 2021 has already seen some encouraging signs on the labour market front. For example, proposed redundancies in Q1 have slowed to a trickle. Meanwhile the Ulster Bank Northern Ireland PMI for March revealed the first increase in employment levels in 13 months. Given the successful rollout of the vaccine, business optimism has returned to levels not seen since before the pandemic.  As a result, firms are gearing up for the recovery and hiring the right people is a key part of that. 

Levelling-off. The best indicator of employee numbers is the HMRC PAYE data. This highlights the actual number of employees on payrolls. Having peaked at just under 754,000 in March employment fell by 16,500 to a post-pandemic low of 737,508 (-2.2%) in May. Since then however, over 40% of these losses, some 6,800 jobs had been clawed back by February 2021. Over three-quarters of this jobs recovery occurred in the three months to February. However, the flash estimate for March suggests this recovery may have stalled with payrolls slipping back by over 200 jobs to 744,065. The latter is almost 10,000 fewer than last March’s peak.

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