Ireland’s plunging birth rate and rising unemployment challenges narrative on economy

The CSO has just published two significant data sets , one relating to  the latest demographics and the other to the labour market in the second quarter of the year. The former was broadly as expected,  but the latter came as something of a shock, challenging the recent narrative on the economy.

The Irish population has been growing strongly again after a softer period following the financial crash and that trend continued in the twelve months to April, with a 65,000 increase (1.3%) taking the total to a fresh high of 4.92m. In general, official estimates and projections have tended to underestimate population growth, in large part because of the signifcance and volatility  of migration in the Irish data. In this case  the scale of emigration was largely unchanged from the previous year, at 55,000, but  offset by  substantial immigration of some 89,000, again similar to 2018, to give a net migration figure of 34,000. The latter is now larger than the natural increase ( births – deaths) which has slowed significantly  of late, to 31,000 from 49,000 at the turn of the decade. Indeed, the Irish birth rate ( births per 1,000 population)  although still very high by EU standards is falling rapidly , to 12.4 from 16.6 a decade ago.

Nonetheless, the robust pace of overall population growth allied to the boom in economic activity has resulted in  the emergence of massive capacity constraints across many areas of the economy, most nobaly housing but also in education, health care, public transport and the  infrastructure  around the main cities. The current make-up of that population growth ( a falling birth rate offset by  high net immigration ) makes it particularly difficult to plan for the future, however, as a period of weaker growth in Ireland might have a very significant impact on migration flows and hence total population.

The boom in the economy had propelled employment  to record highs and prompted much discussion about the level of full employment, as the unemployment rate had fallen to a cyle low of 4.5% in June. In that context the other main CSO release, the quartely Labour Force Survey, was a shocker. Headline employment fell marginally in q2  from the previous quarter but normally rises for seasonal reasons and so the adjusted figure saw a 21,000 decline, spread over half of the fourteen industry sectors categorised by the CSO. The labour force continued to rise  in the quarter so the numbers unemployed rose, as did the unemployment rate, to 5.2% from 5.1%. A marginal change in that context but it did result in a much more significant revision to the previously published monthly estimates, as unemployment in July is now 18,000 higher than previously thought and has been rising for the past four months, taking the unemployment rate to 5.3% instead of 4.6%.

Coverage of the data tended to emphasis the annual growth in headline employment, which is still impressive at 40,000 or 2.0%, although this is the slowest annual growth rate since early 2013. The seasonal  adjusted fall in q2 also followed a strong rise of 49,000 in q1 giving a net positive figure over the first half of the year of 28,000, so one might put all this down to a quirk in the data ( which is based on a household survey) particularly as the numbers claiming unemployment  benefit are still falling, albeit at a much reduced pace.

However, confidence surveys have weakened of late and some of the hard data has pointed to slower domestic activity, notably retail sales which fell by a cumulative 6.5% in the three months to July. One obvious culprit behind this caution is Brexit, which may also be impacting the demand side of  the  housing market. Indeed one other surprising feature of the Labour Force data was that construction employment has flatlined for the past nine months, which may be due to a scarcity of labour but also to caution from builders and developers as well.

All in all, food for thought- has unemployment bottomed in this cycle or is this just a short term hiccup which a Brexit resolution  might help to cure? On population, the Irish birth rate may still be the highest in Europe but is heading rapidly towards the EU average which is under 10.