There’s a lot of confusion out there. IBEC found the recent fall in consumer spending ‘puzzling ‘ – what with all the increase in employment. Others have found it strange, too – strong employment growth but falling consumer demand. Shouldn’t the big increase in employment translate into higher consumer spending and domestic demand? What’s going on here?
Well, it’s only puzzling if you accept that employment grew by 60,000 over the last year. However, once you lift the lid on the numbers and find that the 60,000-growth number in the CSO’s Quarterly National Household Survey (QNHS) is a statistical quirk, then it starts to make sense.
First, let’s note the CSO’s warning about interpreting trends in employment growth during the period they are realigning their sampling base with the 2011 census. This realignment ensures that their Quarterly National Household survey sample is aligned with the population. They do this after each census.
‘After each Census of Population the sample of households for the QNHS is updated to ensure the sample remains representative. The new sample based on the 2011 Census of Population has been introduced incrementally from Q4 2012 to Q4 2013. This change in sample can lead to some level of variability in estimates, particularly at more detailed levels and some caution is warranted in the interpretation of trends over the period of its introduction.’
Now let’s look at the employment numbers. Between the 4th quarter in 2012 and 2013, employment grew by 60,900 – or 3.3 percent (not seasonally adjusted). However, self-employment grew by 33,400, or 11.5 percent. So, self-employment made up 55 percent of all employment growth. Is this realistic? No.
- In the pre-crash period between 2000 and 2007, domestic demand grew annually by 6 percent. On the strength of this self-employment, which would be almost wholly reliant on domestic demand, grew by an annual average of 3.4 percent.
- In the last year, domestic demand flat-lined (it grew by 0.3 percent). Yet self-employment grew by 11.5 percent.
Are we really expected to believe that self-employment grew 3.5 times faster than during the boom years – when domestic demand was stagnating? Are expected to believe that rivers flow uphill?
So what are we to make up of this? Davy Stockbrokers identifies the problem. They hone in on the agricultural sector which also shows a phenomenal increase. While total employment grew by 3.3 percent over the last year, agricultural employment grew by 30 percent. This reflects the growth in self-employment. Regarding these self-employment/agricultural numbers Davy states:
‘ . . . the current sectoral split of the jobs numbers is not reliable. The introduction of a new population sample following the 2011 Census means the sectoral split has been skewed, particularly in relation to agricultural employment. This over-estimation is due to a reciprocal underestimation of agricultural employment after Census 2006.’ (bold is mine).
This is the key observation. Adjusting for the 2011 census, the CSO has found that in the past, self-employment/agriculture numbers were under-estimated. In other words, there were more people working in the economy than was previously thought. Therefore, the current increase in employment is less than the 60,900.
The CSO has warned on a number of occasions about interpreting trends during the period they are re-aligning their survey sample. The Government knows this but Ministers still go about claiming 60,000 new jobs, ignoring these warnings and, so, misleading the debate on this crucial issue.
We won’t be able to make reliable comparisons on overall employment growth until the last quarter of this year. That’s because the CSO has been incrementally introducing the new sample over the previous year.
Is there any part of the employment figures that are reliable for assessing current job creation trends? Fortunately, yes. We can reasonably rely on the category of ‘employees’ because the CSO has two surveys on employee numbers – the QNHS and the Earnings Hours and Employment Costs Survey (EHECS). The latter is a survey of employers and measures employee numbers, hours and wages. There is a slight difference. The survey of employers excludes agricultural employment and micro-enterprises (companies with two employees or less). So this will show slightly lower number of employees.
However, if the trend in employee numbers in these two surveys mirrors each other, we can assume they are reasonably robust. And that’s what exactly what happens.
The trend – whether falling or, more recently, rising – mirror each other almost exactly. This suggests that we can rely on the employee numbers in the QNHS.
Now on to puzzle-solving. In the last year, the QNHS showed an increase of 28,300 employees, a 1.8 percent increase. This is not an insubstantial amount; however, it is far below the 60,000 headline number. [Just to note, 2,300 of this increase was due to increased participation in labour activation schemes such as JobBridge].
However, at the same time, weekly income was falling. Overall wages (weekly earnings) fell in the last quarter we have data for (the 3rd quarter of 2013).
Due to the fall in weekly earnings, total wages in the economy has not been increasing despite the increase in employee numbers. There are a few caveats, here.
- Preliminary data for the final three months last year shows that weekly earnings rose slightly. However, the number of employees actually in the final three months – by more than 2,000 (I bet you didn’t hear about that in all the celebration of the job numbers).
- This doesn’t count income from the self-employed. But we don’t have an average income for the self-employed and, as we saw above, we can’t rely on self-employment numbers.
- A number of people will have signed off the Live Register to take up work over the last year. Therefore, the actual increase in total income in the economy will be less (you’d have to subtract the social protection income from the wage income to get the net gain).
- And when you consider that people are trying to pay off debts, much of the extra income going to the consumer economy would be less.
So there shouldn’t be any confusion about why consumer spending fell in the last year – once you’ve accepted that the headline growth rate in total employment is unreliable and factor in declining weekly income.
That’s why domestic demand remains flat. That’s why consumer spending is still falling. There’s no puzzle here.
Just an economy that is stagnating.
NOTE: I will look at where the jobs are being created in a post next week.