Transcript Groundhog Day

Silver linings in dark clouds
James McCann
RBS Group Economics
May 2013
Depressing times!
UK national income during and after recessions (Pre-recession peak level = 100)
125
120
Average UK recession
Great Depression
115
2008 onwards
110
105
100
95
90
0
1
2
3
4
5
6
7
8
Years since pre-recession peak in national income
Source: National Statistics and Group Economics Calculations
Traditional export markets struggling
Export growth 2012 (%y/y)
6
4
2
0
-2
-4
-6
-8
-10
-12
Total
Eurozone
Spain
Germany
Non-EU
USA
China
Source: National Statistics
Money’s too tight to mention
UK household debt-to-income ratio (%)
170
Forecast
160
150
140
130
120
110
100
90
20
15
20
14
20
13
20
12
20
11
20
10
20
09
20
08
20
07
20
06
20
05
20
04
20
03
80
Source: National Statistics and Group Economics Calculations
How much “austerity” to go in the UK?
Tax increases
Investment cuts
Benefit cuts
Day-to-day spending
Total
Start
Finish
How much of scheduled austerity completed at end of 2012-13
Okun’s law broken?
Relationship between unemployment and growth in the UK
10%
-3%
8%
-2%
6%
-1%
4%
0%
2%
0%
2%
GDP growth
-2%
-4%
-6%
Q1 1971
3%
%y/y GDP growth (4 quarter ma, LHS)
12m Change in unemployment rate (RHS)
Q1 1981
Q1 1991
Q1 2001
4%
Q1 2011
Source: National Statistics and Group Economics Calculations
Unemployment rising
1%
What’s going on??
UK productivity (100 = Q1 2000)
120
115
110
105
100
Q
1
20
Q 00
4
20
Q 00
3
20
Q 01
2
20
Q 02
1
20
Q 03
4
20
Q 03
3
20
Q 04
2
20
Q 05
1
20
Q 06
4
20
Q 06
3
20
Q 07
2
20
Q 08
1
20
Q 09
4
20
Q 09
3
20
Q 10
2
20
Q 11
1
20
12
95
Source: National Statistics and Group Economics Calculations
What “should” have happened?
Actual employment and employment under constant productivity assumptions
30,000,000
29,500,000
29,000,000
28,500,000
28,000,000
27,500,000
Employment
Constant productivity employment
27,000,000
26,500,000
Q1
2008
Q2
Q3
Q4
Q1
2009
Q2
Q3
Q4
Q1 Q2
2010
Q3
Q4
Q1 Q2
2011
Q3
Q4
Q1
2012
Q2
Q3
Q4
Source: National Statistics and Group Economics Calculations
What has been driving the unemployment rate?
The UK labour market story so far (changes in the number of people (thousands)
between Q1 2008 and Q4 2012
2,000
1,500
1,000
People (thousands)
500
-500
-1,000
Population
Active
Inactive
Employed
Full time
employed
Part time
employed
Full time self
employed
Part time
self
employed
Unemployed
Source: National Statistics and Group Economics Calculations
Where has job creation been strongest?
Change in employment by sector (2010-2012)
Mining & quarrying
Information & communication
Accommodation & food service
Professional scientific & technical
Administrative & support
Other services
Transport & storage
Services
Real estate
Manufacturing
Retail
Health/Social work
Arts
Finance
Education
Construction
Agriculture
Public sector
-10%
-5%
0%
5%
10%
15%
Source: National Statistics and Group Economics Calculations
1. Real wages are falling
Real average employee compensation and the unemployment rate
8.4
102
8.2
101
8
100
7.8
99
7.6
98
Unemployment rate
7.4
2010 Q1
Real employee compensation per employee
97
2010 Q4
2011 Q3
2012 Q2
Source: National Statistics and Group Economics Calculations
2. Firms substituting labour for capital
Net lending/GDP (inverted scale) and the unemployment rate
-3%
8.5
-2%
8
-1%
7.5
0%
7
1%
6.5
Net lending/GDP
2%
Unemployment rate
6
3%
5.5
4%
2008 Q1
5
2009 Q3
2011 Q1
2012 Q3
Source: National Statistics and Group Economics Calculations
3. Firms hoarding workers
Business confidence (inverted scale) and the unemployment rate
-25
8.4
-20
8.2
-15
8
-10
7.8
-5
0
2010 Q1
Confidence
Unemployment rate
7.6
7.4
2011 Q1
2012 Q1
Source: National Statistics and Group Economics Calculations
What does this mean for the future?
Unemployment forecast
9
2,700
Forecast
2,500
8
2,300
7
2,100
1,900
6
1,700
5
2012 Q1
1,500
2014 Q1
UK Unemployment Rate (%)
2016 Q1
2018 Q1
Numbers unemployed (000s)
Source: National Statistics and Group Economics Calculations
Thank you and keep in touch!
Internet
www.rbs.com/economics
E-mail
www.rbs.com/economics/registration
Social media
@rbs_economics
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