Wages, Jobs & Wages Again – Remain Positive!
Please note this blog post was published over 12 months ago and so may not include the most up-to-date information, for example where regulation around investing has changed.
As the April 12th Brexit deadline looms, the clouds of uncertainty as to the eventual outcome have not dissipated. Whilst this causes confusion and concern, economic data released this week should evoke positive feelings, both around the globe and domestically.
1. Eurozone Wage Growth
Despite weaker European industrial output, recent figures from the Eurozone show average wage growth increasing from the previous quarter. Annual, nominal, hourly pay increased at the rate of 2.3%, the highest rate of growth since 2009.
European Wage Growth
Source: Bloomberg, March 2019
Digging beneath the data there have been some areas where wage has slowed, in Germany and Italy, but pay increases are evident across the remaining 17 members, with Portugal, Spain and the Netherlands all reporting improvements. Most surprisingly, France showed a significant increase in wage growth from 1.6% to 1.9%. Senior economists pointed to the fact that despite on-going ‘yellow-vest’ protests, this up-tick in wage growth reinforces France’s position as a major economic performer within Europe.
Pay increases are being experienced across all industries, but with greater emphasis coming from within the service sector which remains very robust in Europe.
2. UK Unemployment
While we appreciate the difficulties of evading Brexit headlines, earlier this week the Office for National Statistics (ONS) reported that unemployment within the UK had fallen by a further 35,000. This now leaves the total population without employment at 1.34 million, or 3.9% of the labour force, the lowest figure since 1975 and well below the EU average of 6.5%.
The UK’s employment Minister, Alok Sharma, commented that recent employment growth represents further evidence of a resilient economy despite Brexit adversity. We can see this from the chart below. The fact this isn’t a cause for celebration is a complete mystery to us.
UK Unemployment Rate
Source: Bloomberg, March 2019
3. Rising wages in the UK
The declining rate of unemployment has had a strong positive effect on wages in the UK. Average weekly wage growth keeps pointing up and is now at 3.4%. Despite a slight upturn in the inflation rate, from 1.8% to 1.9%, wage growth is positioned nicely ahead of inflation; as illustrated in the chart below. The gap between the two measures is referred to as real wage growth which is what’s left over after deducting inflation
UK Average Wage Growth Vs Inflation
Source:Bloomberg, March 2019
The effects from positive real wage growth include a capacity for increased spending or, alternatively, the option to increase savings. Both can spur economic growth. The former through increased consumption of goods or services and the other through savings channelled efficiently into investment activity.
Brexit is fraying the nerves of UK citizens and yes, ultimately, whatever outcome eventually comes to fruition there will be consequences that may not have been considered. In fact, we cannot imagine a scenario in which the media will choose not to peddle bad news and inflame feelings.
Meanwhile, regardless of what is taking place around Brexit, businesses are increasing profits, creating more jobs and paying better wages. The more we consume bad news, the more we become blinded to positive developments happening right in front of our noses!