Irish unemployment rises despite strong employment growth

The latest data on the Irish labour market, from the Quarterly National Household Survey  (QNHS) in q2, shows that employment is stronger than generally thought, but that the labour force is also growing rapidly again, boosted by a return to net immigration, with the result that the numbers unemployed actually rose marginally, keeping the unemployment rate unchanged over the first half of the year.

Employment has been growing steadily now for some time and the second quarter saw an acceleration, with the numbers at work rising by a seasonally adjusted 20,000, following a 16,000 rise in q1.  That increase brought the annual rise to 56,000, or 2.9%, and the seasonally adjusted employment figure above two million for the first time since early 2009. Over the past year most industries have created jobs, notably construction ( 11,000) and manufacturing (9,000), although there was some  modest job losses in financial services and (surprisingly)  professional and scientific services.

The labour force in Ireland contracted sharply during the recession and has been slow to recover, although that now appears to be changing, with a 22,000 rise in q2, bringing the annual increase to some 33,000. The participation rate has picked up but a big factor in Ireland’s case is migration. We now know from the 2016 census that net emigration since 2011 was much lower than thought, and   the CSO’s latest estimates  show a return to net immigration in the year to April 2016. Emigration is still high , at 76,000, but immigation has picked up, to 79,000, giving a net 3k inflow. Most immigrants are still from outside the EU (32,000) but the past year has seen a rise in  returning Irish migrants, with a 10,000 increase to 21,000.

The CSO publishes a monthly unemployment figure which is often revised following the QNHS release, and that is indeed the case on this occasion. The unemployment rate has been revised down in q2, to 8.4% from 8.7%, but that is now unchanged from the first quarter, with the numbers unemployed now revised up. Indeed, the unemployment figure in the second quarter, at 183,000, is  actually 1500 higher than in q1.

Overall, the figures indicate that the economy is in better shape than indicated by the first quarter GDP figure ( which showed a contraction) and that household incomes are being supported by strong employment growth. Yet they also highlight an issue we have consistently  flagged of late- the growing signs of significant capacity constraints. Migration has turned positive again, population growth has picked up and the labour market has tightened,  putting pressure on existing resources in housing, health , education and  the infrastructure. There is a clear case then for additional government spending in these areas, particularly when the cost of borrowing is so low, yet existing fiscal rules mean that the State’s room for manoevre is limited.

Irish Employment growth slows in final quarter of 2015.

The latest Irish Quarterly Household Survey, covering the final three months of 2015, revealed a surprising slowdown in the pace of employment growth; the increase  was just 4,700 or just 0.2%. Moreover, male employment fell in the quarter, by some 4,000, and  male unemployment actually rose. Total employment had grown rapidly in the first half of the year, by over 30,000, so the annual rise in the final quarter was still a healthy 44,000 (2.3%)  but forecasts for employment growth in 2016 may be  trimmed a little .

The labour force rose strongly in the quarter, by 9,000, and increased by 18,000 over the full year. The participation rate (the proportion of those over 15 in the labour force) is picking up again, albeit modestly. Net emigration  slowed to under 14,000 in the year to April 2015 and appears to have fallen further in recent months, so supporting labour force growth.

As a result of this interaction between employment and the labour force the numbers unemployed  in the final quarter fell only marginally, by 1.700 to 196,000. This was 26,000 lower than a year earlier, but again most of that decline was in the first half of 2015.

The unemployment rate also declined in q4, to 9.1% , but  the fall was modest, from 9.2% in q3. The former was  above the  previously published  monthly estimates , prompting a revision, with the result that the unemployment rate in January is now put at 8.9% instead of the original 8.6%.

The quarterly employment figures can be volatile and have shown unexpectedly soft readings before ( for example in early 2014) which have not proven the start of a trend. On that basis it would be premature to read too much in to this data, although it should be noted that Ireland is operating well above capacity, according to Department of Finance forecasts, and hence above ‘full ‘ employment , implying a large structural unemployment issue. That assumption may be wrong ,of course, but if true means that the unemployment rate may not fall as rapidly from here as the consensus predicts.

Irish unemployment falls below 200k, unemployment rate at 8.9%

The pace at which Irish employment collapsed during the recession surprised everyone, and now the pace of jobs growth is also much more rapid than generally envisaged  a few years ago. Seasonally adjusted employment grew by 29k during 2014  and has picked up momentum in 2015,  rising by 43k over the first three quarters of this year. That takes the total increase over the past three years to 140k,  leaving total employment in the third quarter of 2015 at 1.98 million and  2.9% above the figure a year earlier.

Most industries have seen employment grow over the past year, notably manufacturing (+14k) and construction (+15k), with the latter total now at 127k from a cycle low of 96k, although still  a long way from the cyclical peak of 274k. Financial services saw one of the few declines, alongside retail, but the general picture is of an economy in which  the growth of domestic spending is translating into  robust demand for labour,

The labour force   is also responding to the changed environment, and although broadly flat in the third quarter has risen by some 13k over the past year. That was dwarfed by the annual  rise in employment (56k) so the numbers unemployed fell  by 43k  and by a seasonally adjusted 9k in the quarter. That left the total unemployment figure  at 197k, the first sub-200k reading since the  final quarter of 2008.

The  CSO estimated the unemployment rate in q3 at 9.1% , again the lowest in seven years. Moreover, the initial monthly estimated unemployment rate for the quarter had been put at 9.5% and has consequently been revised lower, leaving the October estimate at 8.9% from the initial 9.3%.

The Irish economy , as captured by real GDP, actually bottomed out in the final quarter of 2009 and recent data revisions show that it grew in every subsequent year, albeit marginally in some cases. Yet the general public  did not perceive a recovery ,in part due to the absence of employment creation. That has well and truly arrived and the tightening labour market is likely to generate general upward pressure on wages, which is already appearing in certain sectors of the economy.

 

 

Ireland now has jobless growth instead of growth-less jobs

The relationship between Ireland’s reported GDP and employment has been a puzzle of late. Output in the economy barely grew last year yet employment soared and this year has seen GDP growth pick up but employment effectively stagnate; growth-less jobs has given way to jobless growth. The unemployment rate is still falling, it has to be said, but the explanation for that is more to do with a decline in the labour force rather than any strength in labour demand. Average pay is also declining and so the picture painted by the recent labour market data is certainly at odds with the recovery narrative currently holding sway.

The main source of information on Irish employment is the Quarterly National Household Survey (QNHS), which means that sampling errors are always present. That aside, the data shows that employment bottomed in the third quarter of 2012, having fallen by a seasonally adjusted 327k (or 15%) and  then rose sharply in 2013, with the annual increase in the final quarter at 61k or over 3%. Not all industries participated and agriculture saw by far the biggest increase in employment, but on the face of it the pace of job creation was extraordinary, and one usually associated with a booming economy. Yet the recorded GDP data, which measures the output of the economy, initially showed a fall in 2013, and although subsequent revisions have been positive, the latest vintage still has real GDP growth last year of only 0.2%.Nonethelss the strength of job creation precipitated a substantial fall in the unemployment rate, to 12.2% at end 2013 from 14.2% a year earlier, despite a rise in the participation rate. The implied tightening of the labour market was not evident in terms of pay, however, as average weekly earnings fell by 0.7% last year.

The data revisions to the national accounts had left exports stronger than previously thought and a positive contribution from external trade was the main driver of the 2.7% rise in Irish GDP reported for the first quarter this year, offsetting another fall in domestic demand. The data left the annual growth rate in q1 at 4.1% and, as we expected, has prompted a substantial upward revision to the consensus growth projection for 2014 as a whole, with many private sector forecasts now  well over 3%. Many analysts are also anticipating a pick up in personal consumption, in part predicated on a strong employment figure, but the latest QNHS data, for q2, is very disappointing in terms of job creation; employment rose by 4.3k on a seasonally adjusted basis in the quarter bringing the increase in employment in the first half of the year to just 5.5k. Coverage of the figures tended to emphasise  the annual increase in employment of 37k but  the quarterly flow implies that  the annual rise will slow sharply by the end of the year .

The unemployment rate fell further in the quarter, to an average 11.5%, despite the weak employment figures, reflecting a fall in the labour force and a decline in the participation rate. The decline in the latter was particularly acute for those  over 16 and under 24, with more staying on at school or entering third-level. Emigration is a factor too, although the net figure fell  to 21k in  the year to April 2014, with an increased inflow of  61k partially offsetting a reduced outflow of 82k.

The surprisingly weak employment figures should also be set against the data on average earnings, showing an annual fall of 1.1% in the second quarter, which again would not indicate a tightening labour market overall, although some industries did see strong annual pay growth including construction (6%), the hospitality sector (5.3%) and manufacturing (4.2%). Some have pointed to the strength of income tax receipts as being inconsistent with the pay and jobs data, which is worth noting, although it should be remembered that the 2014 Budget did include measures to boost income tax by over €200mn as well as strong carryover effects from 2013.

As is often the case with Irish data we are left with a confusing picture- is the economy growing very strongly, as indicated by the GDP figures, or is it much weaker  as implied by the employment figures?. The latter does seem to suggest that domestic demand, and particularly the domestic service economy, where most jobs are located, remains in the doldrums. This does not preclude 3.5% GDP growth but it does mean that growth will again be driven by the multinantional export sector, which is not labour intensive.