UK pay squeeze is ending as wage growth accelerates – business live
The dollar has dipped ahead of the Federal Reserve meeting, despite the prospect of a rate rise announcement. Connor Campbell, financial analyst at Spreadex, said:
In a move that surprised no-one the Dow Jones was incredibly reticent to do much after the bell rang on Wall Street, as investors eye the month’s Fed meeting.
The Dow dipped 0.1% this Wednesday; enough of a drop to suggest some pre-Fed fretting, but nothing to really tip its hand as to what it’s are expecting from the March statement. The dollar was more interesting in that regard. The greenback fell half a percent against the pound, 0.4% against the euro and 0.2% the yen, hinting that investors are perhaps a tad worried that Jerome Powell, in his first outing as the central bank’s chief, won’t be as hawkish as they want.
Interestingly the questions surrounding the meeting are less about what the Fed will do, but more about how they do it. At this point a rate rise seems almost guaranteed, a move that would take the benchmark interest rate to 1.75%. What is less certain are how many interest rate increases will follow throughout 2018, namely whether Powell will pull the trigger a further 2 or 3 times after his debut hike.
More signs of strength in the US economy ahead of the Federal Reserve rate decision.
Home sales jumped 3% in February to a seasonally adjusted annual rate of 5.54 units, according to the National Association of Realtors. Analysts has expected a rise of just 0.5%. But there is a shortage of available homes which is pushing up prices and helping to price first time buyers out of the market. NAR chief economist Lawrence Yun said sales were uneven across the country but did increase nicely overall:
A big jump in existing sales in the South and West last month helped the housing market recover from a two-month sales slump,. The very healthy US economy and labor market are creating a sizeable interest in buying a home in early 2018. However, even as seasonal inventory gains helped boost sales last month, home prices – especially in the West – shot up considerably. Affordability continues to be a pressing issue because new and existing housing supply is still severely subpar.
Updated at 2.42pm GMT
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Wall Street makes uncertain start ahead of Fed decision
Ahead of the Federal Reserve decision – with rates expected to rise and investors seeking hints about further increases this year – Wall Street has slipped back at the open.
With technology stocks still under pressure, both from EU tax plans and the fallout from the Facebook controversy, the Nasdaq Composite has opened down 0.21%.
The S&P 500 has dipped 0.09% while the Dow Jones Industrial Average is down 27 points or 0.12%.
Neil Wilson, senior market analyst at ETX Capital, said:
Markets are pricing in a roughly 90% chance of a hike this week, the first of three or four anticipated this year. So the focus is on the dot plot and the accompanying language from chair Jay Powell. For risk, markets will want the Fed to hold off indicating 4 hikes in 2018 but keep up its confident assessment of the economy. This will in large part depend on how policymakers assess inflationary pressures – if they think inflation is coming they might accelerate the path of rate hikes. But there is a much bigger risk that the Fed sticks to three in 2018 but raises forecasts for 2019 and that could knock equities and give a boost to USD more than indicating four hikes in 2018 might…
Since the last meeting in December inflation has picked up but the pace has not really accelerated beyond the most bullish scenarios seen already…
Currently the median dot plot suggests three hikes this year, and there is a chance that this could rise to four. However, it is perhaps more likely that the dots show greater confidence in three hikes (i.e., the doves come round to consensus), than the centrists join the hawks and go for four. Nevertheless, with the key doves not voting this year (Neel Kashkari and Charles Evans), it would imply that the actual FOMC dots of voting members is higher…
Trade and tariffs will also be a big focus having weighed not insignificantly in the last week. It may be the wrong moment for the Fed to signal more hawkish policy when we look at the potential negative impact of tariffs on GDP. We wait to see whether policymakers comment on the impact of tariffs and a trade war on the economy.
Updated at 1.35pm GMT
The jump in UK wage growth means interest rates may rise soon, argues our economics editor Larry Elliott.
Higher interest rates from the Bank of England have moved a decisive step closer after the latest official figures showed earnings growing at their fastest rate in more than two years.
The latest snapshot of the labour market from the Office for National Statisticsshowed that a record high level of employment and a drift from part-time to full-time work pushed up wages in the three months ending in January.
With inflation falling, the ONS said the squeeze on living standards that had dampened consumer spending over the past year had come to an end if bonuses were included in the yardstick used to calculate earnings.
Threadneedle Street’s monetary policy committee is meeting to discuss interest rates this week and the prospect of an increase in borrowing costs pushed up the pound on foreign exchanges. An increase in May is thought more likely than one this week….
Over in parliament, the prime minister has hailed today’s jobs figures.
Theresa May points out that employment is at a joint record high, the unemployment rate hasn’t been lower since 1975, and economic inactivity is at a record low.
No mention of the fact that the jobless total did rise in the last quarter, though…
Dr Carole Easton, chief executive of Young Women’s Trust, is concerned that younger female workers aren’t getting enough help to join the jobs market.
She points out that unemployment among women aged 16-24 rose by 21,000 in the three months to January. That means 151,000 young women are now unemployed and a further 340,000 young women are economically inactive and not in full-time education.
Dr Easton says young people need help to get the right skills, and should also benefit from the National Living Wage (which only applies to those over-25s today).
“21,000 more young women are unemployed, meaning nearly half a million are out of work. The Government must help young women into jobs to benefit individuals, businesses and the economy.
“Young women are telling us they want to work but they are getting shut out of the jobs market by employer discrimination, low pay and unaffordable childcare.
Interestingly, the number of people in work and the number counted as unemployment in Britain both rose in the last quarter.
You might expect them to move inversely – but instead, there was a fall in the number of ‘economically inactive’ citizens, suggesting people are being lured back into the jobs market.
Dr Heather Rolfe of the NIESR thinktank explains:
These figures indicate that, in the face of recruitment difficulties, including as a result of a large fall in net migration of EU citizens, employers are hiring people who have not been actively seeking work.
This might be seen as a positive sign, but this pool is likely to be limited”
UK jobs report: The political reaction
As usual, Britain’s unemployment report has split Westminster – with the government pointing to what’s going well, and the opposition focusing on the problems.
The Department for Work and Pensions highlights that the employment rate is now back at a record high (75.3%), with the unemployment rate back at its lowest level since Harold Wilson was prime minister in 1975 (at 4.3%).
Esther McVey, secretary of state for Work and Pensions, says the government is trying to get more people into work, adding:
“And from next month, we’ll be taking thousands more people out of paying tax and also increasing the National Living Wage, benefiting those on the lowest pay and making sure they keep more of what they earn.
“In fact by raising the National Living Wage we have ensured that the lowest earners have seen their wages grow by almost 7% above inflation since 2015.”
But her opposite number, Labour’s Margaret Greenwood, is concerned that the number of people out of work rose by 24,000 during the last quarter.
“With eight million people in working households living in poverty and the cost of basic essentials remaining high, the Spring Statement was a missed opportunity for the Government to take the urgent action needed.
“The Government has also failed to close the employment gap faced by women, disabled people and BAME groups, who have too often borne the brunt of austerity cuts.”
Ian Stewart, chief economist at Deloitte, has spotted another interesting angle in today’s jobs report: More people are quitting their jobs to move to another company.
That could drive wages growth higher, he reckons, as employers are forced to fight for labour.
“The post-Brexit squeeze on consumer spending power is easing. Low unemployment, a slowing flow of overseas workers into the UK and high levels of job vacancies are raising wage pressures and boosting job moves.
“The number of people resigning from one job to move to another fell in the wake of the financial crisis, but is now running at its highest level since 2001.
“The scene is set for a pickup in earnings growth this year.”
Resolution: Pay squeeze is finally ending
The Resolution Foundation has crunched today’s labour force statistics, and calculated that Britain’s pay squeeze is finally ending.
The think tank says that the official confirmation will come in a month’s time, when the ONS publishes the unemployment figures for November-February.
But today’s data shows that earnings are finally overtaking inflation, after almost a year of pain for hard-pressed households.
Today’s figures show that real average weekly earnings fell by 0.2% in the three months to January, fell by 0.6% in the public sector, but were flat at 0 per cent in the private sector.
However, the Resolution Foundation pay projection shows that earnings growth is set to have returned to 0.1% overall, and 0.2% in the private sector, in the three months to February.
However, while private sector workers can celebrate, those in the public sector will continue to suffer falling real wages for a bit longer – until new pay deals are approved,
Stephen Clarke, Resolution’s senior economic analyst, warns that the squeeze on living standards isn’t over.
“Britain’s 12-month pay squeeze has finally ended, though public sector workers will have to wait until new pay settlements are agreed across the NHS, schools, the police and other parts of the public sector.
“While it’s a relief that pay packets are no longer shrinking, the outlook for anemic pay growth remains a huge living standards concern. Average pay is still lower than it was a decade ago, and an entire generation of young workers are still yet to experience the 3-4 per cent pay rises that were once the norm.”
Factory workers and builders are enjoying decent pay rises, says Geraint Johnes, research director at the Work Foundation and Professor of Economics at Lancaster University Management School.
He’s hopeful that the fall in real wages will soon end, especially as the UK economy is still creating jobs..
“Encouraging news on pay includes the 2.8% rise in total pay on the preferred measure, this being driven by gains in manufacturing and, particularly, construction.
Alongside the drop in consumer price inflation announced yesterday, this heralds an early end to the squeeze on real earnings. Meanwhile, the 182k rise in full-time employees in employment figure signals a labour market that continues to grow.”
Despite the pick-up in wages in recent months, UK workers are still poorer than before the financial crisis once you adjust for inflation.
The Office for National Statistics explains that in real terms:
- average regular pay (excluding bonuses) for employees in Great Britain was £459 per week before tax and other deductions from pay, £14 lower than the pre-downturn peak of £473 per week recorded for March 2008
- average total pay (including bonuses) for employees in Great Britain was £488 per week before tax and other deductions from pay, £34 lower than the pre-downturn peak of £522 per week recorded for February 2008
The ONS also provided this chart, which shows the impact of austerity on the wages of teachers, doctors, police officers and other public sector workers
Updated at 10.06am GMT
Jobless rate hits 42-year low
Britain’s unemployment rate has fallen back to 4.3%, its lowest level since 1975.
However, the number of people out of work has risen, by 24,000 to 1.45 million in the three months to January 2018 when compared with August to October 2017.