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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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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Housing market slowdown underway?

One direction. Northern Ireland’s house price recovery is six-years old. For twenty-three of the last twenty-five quarters residential property prices have gone one way – up! Despite this significant run of steady price rises, less than one-third of the 57% drop in prices that occurred between Q3 2007 and Q1 2013 has been recouped so far.  As of Q2 2019, local house prices were still 39% below Q3 2007’s ‘freak peak’.

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Northern Ireland Economic Output hits a ten-and-a-half-year high

The latest Northern Ireland Composite Economic Index confirmed that the local economy notched up its sixth successive quarter of growth in Q1 2019. The 0.3% q/q rise marked an improvement on Q4 2018’s lacklustre growth rate of just 0.1%. While the rate of growth in the latest quarter was perhaps stronger than expected, it still represents a rather weak rate of expansion. Meanwhile the annual rate of growth slowed from 1.8% y/y in Q4 to 1.5% in Q1 2019.

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New car sales up and down in June?

(up in Q2 y/y but down y/y in June)

New car sales are traditionally viewed as a key barometer of consumer confidence. Despite the labour market being the strongest it has ever been, consumer confidence – viewed through the lens of new car sales – remains uninspiring. Last month proved to be the weakest June for dealers in seven years with 5,170 new vehicles rolling out of showrooms. That was six per cent lower than last year. However, the latest figures follow the best May in 11 years and a mediocre April.  As a result, the second quarter still posted a respectable 2.7% y/y rise (+369 cars) and the strongest Q2 in three years.

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Chart of the month: House prices – a tale of three cities

A graph charting instances of house prices being discussed at dinner parties across Belfast and Dublin would show a very large spike around 2007 followed by a deep trough in the years after the boom rediscovered gravity. Indeed, the subject became almost taboo as the downturn unfolded and residential property prices fell almost 60% from their respective peaks.

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Private sector flat or expanding?

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Robust growth, according to PMI – The last few days has seen a flurry of surveys released on the health of the Northern Ireland economy. Ulster Bank’s PMI pointed to robust growth across the private sector in Q4 2017. The Northern Ireland Chamber of Commerce & Industry’s Quarterly Economic Survey (QES) for the same period was not quite as positive as the PMI.  Nevertheless, both manufacturing and services firms reported growth in the final quarter of 2017. Overall, the performance was more encouraging for the manufacturing sector than for services firms. Continue reading