X + Y = Stagnation

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The CSO release two sets of data yesterday which shows show why we are into a period of what Tom Healy, Director of the Nevin Economic Research Institute, described as ‘stable stagnation’.

First up is the Retail Sales Index, which monitors the level of activity in the retail sector (both volume and value).  This is one indicator of the health of the domestic economy.


As seen, the Retail Sales Index has been stagnating since early 2011 – going up a bit, going down a bit.  In the second half of last year it looked like the Index was recovering.  Volume growth between June and December rose by nearly 3 percent.  But since December, the Index has fallen every month.  There was some hope of recovery in April, after the torrid weather in March but instead we suffered another fall.  Indeed, last month was the third worst month since the crisis broke.

Now let’s turn to the Earnings and Labour Cost Survey which measures earnings per week and employment (which excludes self-employment).    Turning first to earnings:


Again, earnings have remained broadly the same since late 2010.  One has to be careful in this measurement as we have to consider the ‘compositional effect’.  For instance, if in manufacturing lower-paid jobs are lost (as in the domestic sector), then what remains is higher paid.  The average, therefore, may show an increase in earnings but actually there may have been no increase for the people still working.  Nonetheless, earnings are trundling along at just below €700 per week.

It should also be noted that while earnings are not falling (at least not as they were in the beginning of the crisis) a flat-line still suggests a fall in real, after-tax incomes.  For instance, in the last year average weekly earnings fell by 8 cents.  However, inflation in 2012 ran at 1.7 percent.  So wages, after inflation, fell.  Then there were the last two budgets – household charge, property taxes, abolition of the PRSI allowance, cuts in family-income support, etc.  So after the toll of inflation, people’s pockets are hit again – driving down disposable income further.

And employment – excluding self-employment?


With data only going up to the final quarter of last year this, again, shows numbers stagnating since late 2010.  In fact, in 2012 employment in the total economy fell by over 10,000 compared to 2011.  On a 4th quarter to 4th quarter basis, employment fell by 9,500.   We will get a better insight into how things are going overall on Thursday when the CSO produces its National Household Quarterly Survey for the first quarter of this year which will include self-employment and precarious employment (i.e. under-employment).

So what do we have here?  Stable stagnation.  Why are retail sales stagnating?  Because employment and earnings are stagnating – and in the case of the latter, actually falling after inflation and budgetary measures.

I recall hearing a Government Minister saying some weeks ago that it was hard to explain ‘macro-economics’ to people.  Well, no actually – people do get it.  Ask anyone a simple question:  will retail sales rise when real wages are falling and employment is stagnating (never mind the little inconvenience of paying off debts)?  You’ll get a unanimous no.  In fact, people would be surprised that anyone would ask such a dumb question.

People do understand the simple equation: X + Y (where both are flat-lining)  = S (stagnation)  The real question is:  does the Government?

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