Official statistics out earlier this week reported new record highs in the number of jobs. The labour market is a lagging indicator of economic activity with changes in output not impacting on staffing levels for a few quarters. Meanwhile a trio of output surveys covering private sector services, industrial production and retail sales revealed a loss of momentum in the second quarter of 2022. However, the various surveys revealed that some aspects of the economy are clearly faring better than others. Private sector services saw activity ease (-0.3% q/q) from its’ recent peak, with a more substantial fall occurring within the consumer sensitive retail sector. Manufacturing industry continued to expand in Q2 albeit the pace of growth halved relative to the previous quarter. The cost-of-living crisis, the legacy of Covid-19 and the impact of the NI Protocol are very much evident in the latest figures.
When measuring performance it is important to know what success looks like. It is also necessary to have suitable benchmarks to measure progress along the way. As far as the economic recovery is concerned, getting back to pre-pandemic levels of output, activity and employment satisfies both these criteria. Earlier this week we saw that the number of employees on Northern Ireland payrolls hit a record high for the third month running having eclipsed pre-pandemic levels of employment back in June. On the face of it this looks like mission accomplished until you consider that this is flattered by furlough with 36,100 on the Job Retention Scheme as of the 31 July 2021. Furthermore, focussing on only one measure of labour market success can ignore huge failures in other areas – e.g. self-employment is down over one-quarter from its pre-COVID-19 levels.
So what about output? How is it faring?
It is perhaps worth rewinding back to what the output figures were showing over the last year or so.
2020 was a year of extremes. Record rates of decline in Q2 followed by record rates of expansion in Q3. Lockdown restrictions had the effect of turning economic activity off and on. But as the pandemic progressed, subsequent lockdowns have been less severe on economic activity than the first. Many businesses have been able to adapt and function throughout lockdowns or pivot into new markets. All sectors with the exception of construction saw steeper peak-to-trough declines in this recession than the one that followed the Global Financial Crisis (GFC). The trajectory of economic output has largely followed a bungee jump. The initial fall and rebound being the most extreme, but subsequent declines and rebounds will moderate. For example, Northern Ireland’s private sector output fell by only 2.3% q/q in Q1 2021 – a period of lockdown – which compared favourably with the massive 19.5% quarterly contraction in Q2 2020 (Lockdown 1.0).
Record rebound – Northern Ireland’s economy witnessed a record rate of expansion during the third quarter with output rising by 15.5% q/q. That is according to NI’s Composite Economic Index (NICEI) which is the closest statistic to GDP that we have. Q3’s record rebound followed four successive quarters of contraction and a record rate of decline of 13.7% q/q in Q2. The pandemic has necessitated the introduction of lockdowns which switched off large parts of economic activity. Conversely, the lifting of restrictions in Q3 led to a reopening of the economy and a subsequent surge in economic activity.
Today sees the release of January data from the Ulster Bank Northern Ireland PMI. The latest report – produced for Ulster Bank by IHS Markit – saw the Northern Ireland private sector move towards stabilisation amid a reduction in near-term uncertainty. Business activity fell at a softer pace thanks to broadly unchanged new order volumes. Meanwhile, firms raised their staffing levels for the second month running and business confidence was the highest since April 2018.
One thing that has taken me a bit by surprise is the speed at which climate change has moved front and centre in economics. By-and-large, the environment and global warming were niche issues in business and financial debate. This was even the case early in 2019. But by the end of last year this had changed dramatically – helped in no small part by a Swedish teenager who I first saw addressing a crowd in front of the Brandenburg Gate in Berlin last March. Such was Greta Thunberg’s influence in this respect that she was named Time magazine’s person of the year 2019.
The UK has left the European Union. The transition period, during which the UK remains in both the single market and customs union, lasts until the end of the year, with trade negotiations set to start in March. In the background, the Bank of England kept Bank Rate unchanged, but lowered its forecast for the 2019 UK economy to 0.75%.
A return of Stormont provided a confidence boost. But the honeymoon appears to be over. New Decade New Approach said all the right things but will positive actions follow? Optimists hoped the approach of the new Executive would be akin to Mario Draghi’s “do whatever it takes” commitment in 2012 for public services and the economy. Instead local politics quickly turned into Meatloaf’s “but I won’t do that”. With red lines drawn, ruling out water charges, increases in tuition fees and revenue raising, it looks a lot like the old approach.
2019 was characterised by political deadlock, not least with Brexit uncertainty and Stormont inaction. But a week can be a long time in politics. Two buses came at once, with the EU Withdrawal Agreement Bill passing its third reading in the Commons and Stormont resurrected after its three-year hiatus. The local private sector ended the decade on a low but politics has begun the 2020s on a high. Let’s hope this newfound optimism lasts and can translate to the economy.
A Happy New Year to our readers! Economic data over the last weeks of 2019 suggests the UK economy rounded off the decade struggling for momentum. But with some Brexit uncertainty sidelined, although certainly not all, and a government ready to loosen the fiscal spigots, there’s hope that 2020 will see a gradual improvement in the economy’s fortunes. But as events in the Middle East have shown, it’s already looking bumpy. Just like 2019, then!
Last year was a record year for both the UK and Northern Ireland labour markets. Employment has never been higher and unemployment (for Northern Ireland) has never been lower. Given these labour market conditions one would assume that consumer confidence must be strong too? Not so. Previously having a job, or not having one, was a key determinant of whether a household or individual was in poverty. Over the last decade, however, a sustained period of below inflation wage growth and cuts to working-age welfare benefits has squeezed disposable incomes for those in work too.
