Silver linings in dark clouds

1
Silver linings in dark clouds

• James McCann
• RBS Group Economics
• May 2013

2
Depressing times!
UK national income during and after recessions
(Pre-recession peak level 100)
125
120
Average UK recession
115
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
3
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
4
Moneys too tight to mention
UK household debt-to-income ratio ()
Source National Statistics and Group Economics
Calculations
5
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
6
Okuns law broken?
Relationship between unemployment and growth in
the UK
10
-3
Unemployment rising
GDP growth
8
-2
6
-1
4
0
2
1
0
2
-2
3
-4
y/y GDP growth (4 quarter ma, LHS)
12m Change in unemployment rate (RHS)
-6
4
Q1 1971
Q1 1981
Q1 1991
Q1 2001
Q1 2011
Source National Statistics and Group Economics
Calculations
7
Whats going on??
UK productivity (100 Q1 2000)
Source National Statistics and Group Economics
Calculations
8
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
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
2008
2009
2010
2011
2012
Source National Statistics and Group Economics
Calculations
9
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
Source National Statistics and Group Economics
Calculations
10
Where has job creation been strongest?
Change in employment by sector (2010-2012)
Source National Statistics and Group Economics
Calculations
11
1. Real wages are falling
Real average employee compensation and the
unemployment rate
Source National Statistics and Group Economics
Calculations
12
2. Firms substituting labour for capital
Net lending/GDP (inverted scale) and the
unemployment rate
Source National Statistics and Group Economics
Calculations
13
3. Firms hoarding workers
Business confidence (inverted scale) and the
unemployment rate
Source National Statistics and Group Economics
Calculations
14
What does this mean for the future?
Unemployment forecast
Source National Statistics and Group Economics
Calculations
15
Thank you and keep in touch!
Internet www.rbs.com/economics
E-mail www.rbs.com/economics/registration
Social media _at_rbs_economics
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