Belfast Telegraph

Changes to jobs data giving cause for concern


Economy Watch by Neil Gibson

The election results and consequent DUP/Conservative discussions have understandably dominated the airwaves over the last few weeks - otherwise a collection of concerning economic data might have drawn more attention.

The quarterly employment data was published by Nisra, reporting a fall of 600 jobs over the quarter on a seasonally adjusted basis, and loss of more than 8,000 on an unadjusted basis. This followed the quarterly Labour Force Survey reporting a loss of 21,000 jobs in the first quarter of 2017. House prices fell and car registrations slipped back in early 2017, though legislation changes on car tax will have played a part in the fall of new car purchases.

At face value this is a worrying set of outputs for the local economy.

The chances of a tougher labour market emerging were high. This was flagged as a risk prior to the Brexit vote and the boost to inflation from higher import prices from a depreciated sterling has accelerated the predicted income squeeze.

The Monetary Policy Committee's vote of 5-3 against raising interest rates suggests a further squeeze could be coming soon. Jobs carry the greatest political capital and this data does give cause for concern after four years of reasonable expansion.

A note of caution must be sounded because it is only one quarter and there is contradictory evidence. The PMI surveys are still reporting positivity in the labour market and claimant unemployment levels continue to fall.

Judging by a series of Invest NI events I attended last week there was continued optimism surrounding inward investment with recent successes in cyber, data analytics, film and media (amongst others) all looking likely to be followed by further flows of investment and jobs.

Nevertheless, the basket of weaker indicators is concerning and heightens anticipation for the publication of Q2 data later in the summer. Perhaps it is not yet time for alarm but the alert level has certainly risen.

The latest Ulster University economic policy centre (UUEPC) forecasts have been published this week and they reflect a slowing labour market and, similar to recent releases, they predict at best a pause and perhaps a slight fall back in overall job levels. The latest data suggests this outcome might come a little earlier than forecast.

The report draws attention to the critical issue of real wages and the pressures beginning to be felt as pay rises struggle to match inflation levels. Recent events in England have heightened public concerns over investment in policing and local services.

With education, health and social care also making the headlines there is a palpably different mood across the country.

The long period of acquiescence by the public to a tough spending environment is waning and the Labour Party appealed to a more traditionally left of centre voter with its call for an abolition of tuition fees and more public investment.

In the new political landscape a desire to ease austerity is likely to enjoy support from the Scottish Conservatives and the DUP (indeed all local parties), making it a more likely outcome.

Although former Chancellor George Osborne - now editor of the London Evening Standard - is being increasingly vocal on the need to stick to the 'cutting the deficit at all costs' mantra, it is clear that is not where the public mood (and therefore votes) is at this time.

Public sector workers are likely to look for improved conditions, many areas of public service need more staff and as the backlash on the Conservative manifesto indicates, there seems little appetite to accept any tax rises to meet this need. This points towards more borrowing, an uncomfortable space for Conservatives even if UUEPC modelling suggests this would not cause great economic problems given current lending rates and the inflation environment.

If there is any leverage to be gained from the election results, it is likely to be more around powers than pounds and probably contingent on a local Executive being in place. It must fill the Conservative Party with dread to contemplate the possibility of negotiating Brexit and implementing Direct Rule at the same time.

An appropriate macro environment with nuanced local powers appropriate to the given region or city and exit negotiations carried out in a collective spirit working towards a favourable trade agreement would seem to be the space we need to be in, though one suspects it will be more fractious than that.

Assuming a local Executive is in place there are likely to many times during the parliament at which national policy could be influenced and local outcomes improved so the initial 'arrangement' is not as critical as it might appear.

Everyone will have their own priorities for investment as the list of options is endless. My personal view is that skills and physical infrastructure should top the priority list, that corporation tax at the right price can still play a role and that a number of public expenditure areas will need some innovative funding solutions.

At this point, further tax cuts would not make the top five in my own personal 'priority list'. Many will disagree with this ordering of priorities but it is exactly the discussion to have at this point, a relentless focus on making the best of whatever the circumstances we face.

Next week we hear from Andrew Webb of Webb Advisory

Belfast Telegraph