When we get a rake of economic numbers, it gives us an opportunity to assess where the economy is in the cycle. This new information should also be fed into our own world-view and we should change our minds, borrowing the logic from the great Keynes who declared ”when the facts change, I change my opinion, what do you do sir?”
I think these numbers are strong enough for people to begin to see that the economy is emerging out of the darkness.
For the first time in years, the economic data published last week was almost unambiguously positive. When Europe is flirting with deflation, the expression, ”almost” unambiguous, is good enough. More than that, the data indicates that we may be witnessing a build up of ”pent-up” demand, which could be released into the economy next year.
By far the most encouraging figure was (and is always) increases in employment. A jobless recovery is no good to anyone, but the idea that the economy is creating employment opportunities is something we should truly rejoice over.
The figures showed that 58,000 more people have jobs this year than had jobs last year. That is 58,000 people who have a job this Christmas who didn’t have one last year. Consider the extra number of families that have someone working this Christmas? Of these new jobs, 53,000 are full-time.
One worry is the on-going generational divide. Young workers are not getting a fair chance and they are still – in the main – caught in a limbo-land of not having enough experience to get a job, but not having the job to get enough experience. This column has written before about this poison – one of the most significant challenges for, not just this society, but all Western societies.
The largest annual increases in employment were in the 35-44 age bracket with 21,000 new jobs, and the 45-54 age group with 18,400 extra jobs. Younger workers continue to struggle, with more than 9,000 jobs lost in the 25-34 age group over the period. The long-term impact of kicking around looking for work and facing daily rejection in one’s twenties is unambiguous. US data indicates that people who experience long periods of unemployment in their twenties never recover in terms of wages or income and always lag behind those who have jobs in this early part of their working life.
However, I will come back to this in other columns, for now let us focus on the positive.
One other encouraging development is that the labour force continues to grow. The number of employees in Q3 2013 was 1,573,600, up 27,300 over the year, and the number of self-employed people was also up 30,100 to 309,900.
In general, therefore, income is up in Ireland.
If we take a back of the envelope calculation and take the data published on Tuesday on average weekly wages and then multiply this by the number of new jobs, we get an idea of the sort of increases in incomes we are seeing in the country.
Taking the full-time jobs figure of 53,000 workers and using the newest average weekly wage of Euro 675.53, we get an increase in income before taxes of just under Euro 36 million per week in the country.
Now here is the strange thing.
If income in Ireland is up, how come retail sales have fallen in the most recent month?
You would expect that if people’s income rises, we go out and spend it. But this isn’t – or at least hasn’t – happened.
In fact, there was no change in the value of retail sales in October when compared with September, and there was an annual decrease of 2.1 per cent when compared with October 2012, and a drop of 0.9 per cent in volume terms, after adjusting for inflation.
So out on the main street the increased incomes aren’t being spent.
Where it is the money going?
Luckily, we have new figures from the central bank, which may give us a clue. Deposits from the Irish resident private sector increased at an annual rate of 7.6 per cent in October 2013, following a rise of 8.5 per cent in September.
So that’s it then, the money is being saved. That makes sense doesn’t it? People are saving their new wages. This would make sense because if you have been out of a job for a long time and you get a new one, you are likely to have been traumatised by the experience of not having cash, so you are likely to hoard your new income.
But unfortunately, it isn’t that simple or straightforward because, household deposits, which account for 51 per cent of private sector deposits, actually declined by 0.5 per cent over the year to October 2013. But deposits from private companies rose by 4.9 per cent.
How do we explain this conundrum?
Let’s dig a bit and think about where else the new income could be going.
Let’s look at most recent credit card statistics. We see that the outstanding amount on plastic is falling (and has been for some time). This indicates that people with credit card debt are paying this off and therefore, not spending and not saving really either (see panel). Therefore, the deleveraging cycle goes on and the average person is trying to clear their decks of debts before they start again.
But at some stage this will stop and people will start to spend a little bit and then a little bit more. This is part of the ”pent-up” demand, referred to in the opening paragraphs. As the cycle continues, more and more income will be spent. This might come as a surprise to retailers when it happens, simply because they have been battered in recent years and don’t expect fortunes to turn.
Equally, the fact that Irish companies are saving significant amounts also implies that we are likely to see a substantial increase in investment and hiring in the years ahead. After all, when interest rates are 1 per cent, what’s the point in saving capital that can be put productively to use?
Increased spending from ordinary Irish companies is the other reason, that we should be more confident about the outlook for the economy.
Ultimately, people who have secured new jobs, or those who have simply held onto their positions, will become more confident and begin to spend some of the cash they are now saving. In addition, they will stop paying down credit cards and become more comfortable with their debt position.
This economic tipping point could come as early as 2014, simply because the gains in employment are significant and, with our largest trading partner, Britain, motoring along, external demand for the stuff that real Irish companies produce is buoyant.
Equally, as the Eurozone flirts with deflation, interest rates will stay low so the housing market’s recovery should remain on track, for a while.
It would be a shame to end such an upbeat article with a warning, but unfortunately there is one and this is the likelihood of another bank recapitalisation next year as our big banks fail the ECB’s stress tests.
In my view, only a miracle can prevent this.
However, there is a solution to this. By digging in our heels and insisting with all our power that the Eurozone pick up the new tab based on financial solidarity, the government could actually quarantine the still toxic banks and allow the long awaited recovery to take hold.
David McWilliams hosts the Winter Tales’ book festival at Dalkey on December 7. Tickets www.dalkeybookfestival.org
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Are these rising employment figures for Dublin or for the whole country? While I realise that any data I provide is anecdotal at best, everyone I have asked (all of them are outside Dublin) has only seen more businesses closing and more people being let go. I haven’t heard of someone outside Dublin getting a new job (or a payrise) in months, and it appears to be a very rare occurence for the last few years.
It should be analyse if how much of these jobs are from foreign companies, or Irish companies (seen the stress to promote Love Irish Food, with no vision from my pint of view), and how many are from which size of companies to see if there is a boost in start ups and how long these start ups are in god health and able to set strategies for themselves for the short and long terms and with which depth and perspective. I hope also these people won’t fall for new “mortgages” attracted by short terms Banks interests… Anyway good that… Read more »
Macbeth ‘Is this a dagger I see before mine eyes, the handle towards my hand …I see thee still…etc ‘ When I finished reading the article I thought it had been written by Alan Ahearn , a conformist to the governance policy by the government . I was shocked that our host has changed his clothing to a soft , gentle poodle fornicating to the Dept of Finance . I hope this does not develop into a trend . This site has been renown to provoke men to think . I found this article a damp squib and not challenging… Read more »
The qualification of employment includes a broader spectrum of people that work and are part paid by social welfare and a stipend from a temporary employer. So many social welfare recipients are considered ‘in employment ‘.
This reminds me of what my Ukrainian client told me last week in relation to the current strife : ‘Currently Ukrainians are paid in employment to work and if they join the EU they expect the same money but this time not in employment and on social welfare’ .
I agree to work is better but is there a better way ?
Hi David. I keep an eye the Youth and 25-34 unemployment stats a bit. You are right to point out the decrease in 9000 jobs for those between 25-34 as a concern but there is good news at last for this age group too if we dig a little deeper in the stats.Its true this group and the 15-24 groups have been hit worst by unemployment and emigration but the good news is that the numbers working in the 15-24 have stabilised and the unemployment figures for 15-24 (74k to 64k in the last year) and 25-34 (31.6k to 29.9k)… Read more »
Yes David, the patient occasionally has a great day on the way to the morgue. The drugs are not working, the therapy is a waste of time, the prognosis deteriorates, and then for apparently no reason the patient gets colour in his face, is sitting up in bed chatting, suddenly animated and ‘almost’ his old self. My dad did all that, and the next week we went to the funeral. The reason was, they say, that the underlying condition remained unchanged (he had a stroke and cancer). In the case of Ireland it appears that the prognosis has not changed.… Read more »
Hi, I don’t want to appear negative but I wouldn’t believe daylight out of the Fail Eireann politburo. Ireland is taking in less tax than the cost of running the country. Unemployment levels may have fallen because of the record breaking levels of emigration remember. More people at work? I wonder what are the quality levels of these jobs re salaries and prospects? Ireland has merely parked the promissory note payments. No mention of the monetary runaway madness now brazenly in your face from the Fed in the US and its potential impact on Ireland. No mention of the enormous… Read more »
Hopefully you are right David.
However, what about jobbridge and the internship program? Were they not given a boost earlier on in the year and haver they distorted the figures?
Of course, if the government are massaging the numbers, you could understand what they are trying to do. We have effectively an over correction, which has led to less spending. Creating a feel good factor to induce some economic activity is a worthy gamble on their part, given that nothing the lack of other growth inducing factors.
You are right David
There is an increase in work now for our students. Even oul’ wans like me have been hauled back from Teutonic sojourns to the shores again.
It does seem as if this is Dublin based, but I hope that this will be the case in the rest of the country.
But Jaynie, don’t be encouraging people to run up credit card bills.
I haven’t had a credit card for a long time and don’t ever hope to have one again.
Anyway… lets hope that struggling retailers will have the benefit of any new confidence.
M50 traffic barometer suggests things have got busier over the last year. Definite peak times to avoid and this despite the upgrades in the last few years.
Is there a metric out there of the average salary on these new jobs. Has it remained steady?
Where has the increase occurred? Exports? To where?
Rents are climbing too. Pretty fast in Dublin as well.
Could it be that Ireland is now so open that upward and downward movement is affecting us disproportionately?
I would suggest that rents are climbing because wages are falling. Fifth year consecutive drop in average wage which now officially stands at 35K pa. On that basis the average house price should be 105k. Either house prices drop to this affordable price or the recent 53,000 low paid workers will join the rest in the rental market. Too poor for an inflated mortgage but not so poor enough to rent. In this scenario Buy to Let landlord cash buyers will continue to buy up properties and prop up house prices but the ‘fundamentals are not sound’ when an increasing… Read more »
[…] have risen, genuinely. It isn’t all down to emigration and part-time employment, as explained by economist David McWilliams. Manufacturing growth slowed in November but the Purchasing Managers’ Index has been steadily […]
Anecdotally, I’m not hearing about many, if any, getting new REAL jobs. Might the ‘new’ job figures have anything to do with the many who’re leaving jobs to emigrate, jobs they were over qualified to do, in many cases? Somebody leaves a job, but he/she makes no formal announcement of such to the relevant government related bodies. Might he/she still be regarded as an employee in the system? Somebody replaces him/her, ditto a new employee is in the system? In effect, the negative human story of emigration might be unscrupulously getting used to generate false positive spin? In other words… Read more »
Sligo jobs on FAS site:
Proving this article is delusional.
Unless I’ve missed something, David’s assertion is fairly easy to check – someone just needs to find the statistics on outstanding consumer debt, do the arithmetic and it’ll show that these full time jobs are real full time jobs, or just some low/zero income faux job.
Hard to know what to write at 07.30 in the morning after you have gone through the daily routine of searching job sites for gainful employment…… I suppose opinion depends on where you are in society & what circles you move in. staring at the screen , I wonder is “there any point in posting any opinion” ? Less Companies are closing because less are starting up….. 1000 souls a week are leaving Ireland for better opportunities abroad [ they hope] Government still refusing to deal with national or personal debt crisis which is growing. Until Government starts being honest… Read more »
The title of the article caused me to think about the fate that befell the Titanic and her sister ship the Brittanic. Both ships sank by the bow with their ENGINES ROARING.
Hope its not a metaphor for things to come.
Talking of engines starting to fire, here’s one for you Mr. bonbon.
Wow roaring. Ya hear dat lads. Roaring they are.
Fine Gael election manifesto…
Your money or your life… preferably both! “I’m the dandy highwayman you’re too scared to mention” …the way you look you’ll qualify for next year’s old age pension,, but not if we can help it you won’t!”
“Stand and deliver… Your money or your life!”
Ich werde es allen mitteilen.
There is perhaps one message I get from this article. Basically the unreliability of news. It flip flops from day to day. Next article will be down, next will be up and so on. Look for opportunity. Never mind naysayers even though it may seem to explain current bad luck. Either way, its your ass and you need to get on with it somehow. I am not being an apologist for the nonsense we see around us at all, but I am saying be careful you do not shoot yourself in the foot with a constant diet of bull$hit news… Read more »
European bad bank debt rises to 1 trillion dollars or euro…a increase of 100 billion. No company . business household or Country can survive debt… We can cut costs,increase turnover but if you do not increase profit margin , you have no additional funds to pay down debt. you slash prices which reduces margin but increases turnover which leads to increase in employment but only temporary as you are trying to get people to spend more for this month,which may look good on the balance sheet for Nov & Dec but January & february , turnover collapses.then you hold on… Read more »
Increases in job numbers do not necessarily lead to a growth in income.
Canada goes sideways in income even as job numbers are better. Information shows the standard of living in Canada is now at 45% of what it was in 1070.
strange how that correlates with the total abandonment of controls on currency production in 1971 when Nixon abandoned the vestiges of the gold backed US dollar freeing us to the dubious pleasures of monetary inflation known today as QE to the nth.
Informative reading on the way things really are rather than imagined
While DMcW seemingly dances to a numbers tune, London’s DT
Liam Halligan Back to Promoting Glass-Steagall.
Some disconnect, what?
A goldbug above failed(?) to give the link to Glass-Steagall: Wall Street’s Permanent Bank Holiday “Reenacting Glass-Steagall will mean orchestrating the largest market crash in human history. We present six detailed steps that describe how we will clean up our banking system. Glass-Steagall is not the full recovery, it does not guarantee economic growth, but it is the first step forward–and it will ruin Wall Street.” As I repeatedly show, the first step is GS, then Hamiltonian banking. Massive credit for Reconstruction, but not for bubbles of any kind of proprietary stuff. This shows the genocidal Hayek (et al) attempt… Read more »
Here we go bonbon.
you advocate crashing wall street and the economy and then continuing with a credit based , (read debt based) money system controlled by the central banking system.
As you say GS is a baby step and does really nothing to solve the problem of debt, interest and derivatives.
To control that and stabilize the economy we need to return to a commodity based money and ban fractional reserve banking (an issue you steadfastly refuse to comment about).
Bonbon, do you favour central banking debt based fiat currency and fractional reserve banking? Yes or no Bonbon.
The difference between a “golden” standard and Glass-Steagall is around 4 billion souls. Actually this is the stated intent of the greenie “limits to growth” mob. Coincidence?
Smells like Empire to me. A Brutish one indeed.
When Dalkey Dave blows off farticles like this the audience suspends belief. The comments tell me they know they are being taken for mugs. They should know better and have more faith in the hero inside.
Mise le meas
Haynes – on the the dangers of running engines with no oil, a must for every economist.
Goldbugs may have chosen to ignore this : “Bail-in” Strikes Pensions in Detroit and Illinois Bail-in is now official EU policy, and there ARE going to raid everything to attempt to save the few. So flatten it with Glass-Steagall. That’s where Hamiltonian Credit then plays the key role. That is the central issue that the Austrian School just cannot get around with innuendo or recipe’s. With Hamilton Credit in full play there is no Hayek “road to serfdom”, and no Brutish “gold.standard”. But there is reconstruction on a scale that most cannot even conceive of. DMcW must redo his numbers… Read more »
Tyler with his finger on the bitcoin pulse:
I appreciate the piece you have written here, but you did not mentioned the announcements regarding the Central Bank of Ireland’s balance sheet assessments which were also released on Monday.
These results are quite alarming and the piece you have written is distracting from the real issues which are still confronting this country.
I understand that people don’t want to be reading about doom and gloom all the time, but hiding from the realities does nobody any favours in the long run.