26/11/2014: QNHS Q3 2014: Employment by Broader Sectors

In the previous post I covered the issue of unemployment duration and distribution of long-term unemployment by age cohorts (see http://trueeconomics.blogspot.ru/2014/11/26112014-qnhs-q3-2014-long-term.html).


So now, lets take a look at the sectoral distribution of jobs in the economy.

Across all economic sectors, employment numbers rose in Q3 2014 to 1,926,900 - a rise of 1.45% y/y (+27,600) which represents a slowdown in the rate of growth compared to Q2 2014 when employment expanded by 1.7%.

On a 4 quarters average, current employment levels are at 1,906,630 and this is 2.18% ahead of the 4 quarters average for the period through Q3 2013.

All good. Catch is: we are still only at slightly above Q4 2009 levels in terms of overall employment and are down 3.48% on the highest level recorded during the current crisis period. Overall levels of employment are still 9.47% below the 2008 average levels.

As I noted in previous post, there are good reasons to look at the non-agricultural private sector employment as core indicator for economic activity. Here, Q3 2014 level of employment is at 1,325,500 which is 1.32% (or 17,300) ahead of Q3 2013. The rate of employment growth in Q3 was also slower than in Q2 (1.68% y/y). Q4 2013-Q3 2014 average is at 1,302,900 which is 1.87% ahead of Q4 2012-Q3 2013 average.

Our jobs markets performance was fairly positive compared to 2010-present average as shown in the chart below, but much of this positive performance disappears once we take out public sector and agricultural jobs from the equation.

So in the nutshell, Irish economy added 27,600 jobs in a year though Q3 2014 compared to Q3 2013. but only 17,300 of these jobs were private sector non-agricultural jobs.

Agricultural employment grew by 6.19% y/y in Q2 2014 and it shrunk by 0.81% (-900) in Q3 2014. Nonetheless, 4 quarters average currently stands at 111,700 which well ahead of the 4 quarters average through Q3 2013 which stood at 100,050.

Public and State-controlled sectors employment (basically state services, health and education) stood at 491,700 in Q3 2014, representing a rise of 2.33% y/y. In Q2 2014 sector employment rose 0.8% y/y. This is one of the few sectors (and the only one of the key three super-sectors identified here) that posted accelerated growth in employment in Q3 compared to Q2. Average for the four quarters through Q3 2014 stands at 492,030 which is 1.05% higher than the average for the four quarters through Q3 2013.

Let's take a different look at the numbers. Non-agricultural private sector employment in Q3 2014 was 13.83 lower than 2008 average. All employment was 9.47% lower and Agricultural employment was 4.9% lower. In contrast, public and state-controlled sectors employment in Q3 2014 was 3.56% higher than 2008 average.

Table below summarises changes for broader set of sectors.

26/11/2014: QNHS Q3 2014: Long-Term Unemployment

As usual with QNHS release, I will be covering a number of various angles relating to the latest unemployment data in a number of posts.

Let's start with duration of unemployment.

Overall, some good news. Official unemployment numbers fell 13.2% y/y in Q3 2014 (a decline of 37,400) for all duration categories. However, the rate of decline has moderated in Q3 compared to Q2. In Q2 2014 y/y drop in unemployment was 15.4% (down 46,200), which means that Q3 unemployment decline was 19% lower than the same y/y decline in Q2.

Across all demographic groups, unemployment with duration of less than 1 year dropped 9.9% y/y in Q3 2014 (a decline of 11,300). Again, this is good news. And again the good news are slightly moderated by the fact that the rate of decline has slowed down in Q3 compared to Q2 when unemployment of duration less than 1 year declined by 14.9% (down 18,200).

Long-term unemployment (1 year and longer) across all demographic groups was down 15.7% in Q3 2014 (down 25,900). This is excellent news in general as long-term unemployment is the hardest to shift. However, the rate of decline in long-term unemployment was also slower in Q3 2014 than in Q2 2014. Another good news is that the decline in long term unemployment was concentrated in the middle-age cohorts of 25-44 year olds where long term unemployment dropped by 17.7% y/y in Q3 2014 (down 15,800).

Key relative stat here is the relative share of long-term unemployed in total pool of the unemployed. This is illustrated in the chart below:

The chart shows several interesting trends:

• Overall share of long term unemployed amongst all unemployed has been trending down since the crisis period peak reached in Q1 2012 (63.5%) and currently it stands at 58.0%. The trend, however, is rather shallow;
• The shallow nature of the trend in long term unemployment as a share of total unemployment is driven by one group: those aged 25-44.
• Contrasting this, there has been a roughly volatile and sharply declining trend in long-term unemployed share of total unemployment for those aged 15-24 years of age. Much of this decline is, however, driven by the changing nature of our unemployment benefits system, emigration and state training programmes, rather than jobs creation.
• A worrying trend is for the demographic of 45 years of age and older. Here, there is an effectively flat trend in the share of long-term unemployed relative to total number of unemployed. Q3 2014 is showing a decline in this share to 69.1%, but that is bang on comparable to Q1 2014 share and is almost identical to 69.3 share in Q3 2013.

The last bit is worth highlighting a little more. As chart below shows, we are still on a rising trend in terms of the 45 year olds and older cohorts as proportion of all unemployed by duration:

In other words, we are facing a big problem in dealing with older unemployed and especially with older long-term unemployed.

Two tables below summarise the main results for changes in y/y terms and compared to Q1 2011.

26/11/2014: Juncker Start: Making Sure No Lessons of the Crisis Have Been Learned

More debt, more guarantees, more bureaucrats-administered 'help for the real economy' - it's business as usual in Brussels with the new Commission's plans for a 'EUR300bn investment fund'.

Some details here: http://euobserver.com/economic/126661.

And my comment here:

The problems, as I outlined in the comments on twitter and to EUObserver above, are multiple:

1. The new fund is debt-financed with EU guarantees - and we already have plenty of these schemes which de facto reallocate more and more indirect fiscal power to the Commission extra the normal budgetary procedures;
2. The new fund is going to be extremely leveraged - with a tangible capital base of EIB's EUR5 billion against EUR300-315 billion in disbursable funds (note: the EUR16 billion guarantee is hardly a form of capital). That's leverage levels in excess of Monte dei Paschi di Siena (currently at x54.31) - hardly an image of financial rude health and prudence;
3. The new fund will have to be 'leveraged' against sovereign balancesheets at the time when these are already carrying massive debts. Of course, the EU will concoct an accounting trick to make sure the new debt is not counted as official Government debt, but we all know it will be;
4. The new fund will be run by EBI - which is a de facto bunch of supra-national bureaucrats dressed up as bankers. How real is their concept of 'real economy' is - no one quite knows, but apparently EBI has been around during the crisis and made zero real impact so far. Shoving more money into it is like stuffing an old mare with oats and expecting it to run a race.
5. The new fund priorities for lending will be driven by a combination of the EU Commission dreams of white elephants and national governments grey rhinos. Expect a usual policy prioritisation zoo with buzz words of 'knowledge', 'sustainable', 'green', 'smart', 'R&D intensive' etc flying around.

Signs of the above miracle are already in place. Take the 'investment committee' of the fund. Allegedly it will be composed of 'experts' from the member states appointed by the Commission. That is a double risk - politically appointed domestic experts counter-selected by the politically motivated EU officials. It is a prescription for double vacuum of independence. 

The experts will base their project assessments on the basis of commercial and societal perspectives. Have you ever heard of such criteria for investment in a 'real economy'? No, me neither.

Next, we have the targets. The fund is to focus its efforts on co-funding 'high risk' PPP ventures where private capital has no interest to invest in due to very low risk-adjusted returns.  How on earth can anyone call high risk PPPs a part of the real economy is a philosophical question for the good times. In the middle of a growth crisis, when resources are even more scarce, it is a question of who gets returns and who carries risks. Under  the 'pioneering' idea of Mr. Juncker, the public (EU and sovereigns) will carry risks, private investors will get returns (or higher risk-adjusted returns). It is about as pioneering as suggesting that the banks should be made whole on their losses using public insurance: the entire history of the current crisis is one Junckerian Investment Fund.

26/11/2014: A Chart to Illustrate the Danger of Long-Term Unemployment

Quite a powerful reminder to us all as to the extent of the damage done by longer term unemployment. Here is the US data for the probability of regaining the job based on duration in unemployment:

Source: http://oregoneconomicanalysis.com/2014/11/10/graph-of-the-week-transition-probabilities/

Ignore the numbers on the right (for now):

• Probability of regaining a job for those with less than 5 weeks duration of unemployment is ca 35-36% currently in the US.
• Probability of regaining a job for those with unemployment duration of 15-26 weeks (under 6 months) is roughly 18%. That's half the rate of those at the shortest end of unemployment duration.
• Probability of regaining a job for those in unemployment longer than 53 weeks (roughly year +) is just a notch above 10%.

Another set of regularities worth noting is:

• For all durations, probability of regaining a job after an unemployment spell is showing a downward trend since the late 1990s.
• The steepest decline in probability of regaining the job (trend) is evident for mid-range duration.

This is scary. In effect this suggests that unemployment in the US is becoming more structural over time, despite the claims of the rising economic systems resilience and flexibility. 

Now, onto numbers on the right: these reflect how much of the gap in probability of regaining a job between the pre-crisis high and the crisis period low has been closed to-date.  Now, the author of the post is celebrating that the gap is closing. Fine by me. except do remember - the peaks referenced in the chart go back to mid-2007. Which means we are now 7 years and a quarter, or so, that the crisis has been raging and the best the US has to show is 71% gap closure for short term unemployed. This is what we today call 'the best recovery' amongst the advanced economies. Imagine how horrific it is in the 'less impressive recoveries' of other advanced economies.

25/11/2014: When Executives Abandon the Ship of Fools...

A bit of gas... same chart, one year distance.

McKinsey Global Institute regularly surveys top C-level executives and analysts as to their expectations (current and 6 months forward) for the economic conditions.

Specific question of interest is: "How do you expect your country's economy to be six months from now?"

Marking with blue line responses from the euro area and with red line responses from to full survey (worldwide) we have: a year ago responses citing improving conditions 6 months out were

And this year at the end of Q3 the responses were:

Oh dear... things are, allegedly, getting better.

25/11/2014: Fin-tech: Unraveling Retail Banking Model

My new post for Learn Signal blog on fin-tech innovation causing disruption of traditional retail banking models: http://blog.learnsignal.com/?p=127 

25/11/2014: Irish Recovery: A Dreamland of Falling Wages & Rising Work Hours

More fantastic news from our 'labour cost competitiveness' fairytale economy: average weekly earnings fell 0.8% y/y to EUR671.70 in Q3 2014, just as the economy continued to recover from the blistering growth of Q2 2014.

Revised figures for the sustainably booming Q2 2014 showed earnings falling to EUR684.97 in Q2 2014 - a decrease of 1.5% y/y.

Table to summarise the latest data:

• Average hourly earnings fell 1.4% y/y in Q3 2014. 
• Average hours worked rose 0.6% (normally a good sign), which meant that people worked more for less. 
• Hence average weekly earnings fell. Cheers must be heard at the IBEC and across Official Ireland as that meant the labour costs have shrunk. 
• Except, while average hourly earnings fell 1.4% (-EUR0.29) y/y, average hourly labour costs fell only 1.1% (-EUR0.26) so workers got poorer more than economy got 'competitive'. Oh dear… beggar thy people economics at work.

CSO notes that "average weekly earnings increased in 6 of the 13 sectors in year to Q3 2014". By converse this means average weekly earnings did not increase in 7 of the 13 sectors. Kind of looks gloomy, doesn't it?

So I must get more positive on the news front. Good news is that "the largest percentage increase in the Industry sector (+3.4%) from EUR805.44 to EUR832.59. The largest percentage sectoral decrease was recorded in the Professional, scientific and technical activities sector which saw weekly earning fall from EUR792.27 to EUR750.35 (-5.3%)."

Now, wait… that last bit is somewhat puzzling if we are to assume we are operating an exports-intensive smart knowledge economy backed by 'best employment creation' by the MNCs.

Ah, never mind… here's the summary:

Over the longer range, "average hourly total labour costs decreased by 1.9% over the four years to Q3 2014 from EUR24.72 to EUR24.26 per hour. The percentage changes across the sectors ranged from -10.8% in the Education sector (from EUR40.66 to EUR36.28) to +7.6% in the Information and communication sector (from EUR31.51 to EUR33.90)."

All of which should make us only more competitive as the 'labour costs mean everything' economy, and less attractive to anyone with marketable skills. Now, lets hope companies will pick up investment on foot of all these 'savings' because it is hard for me to see how on earth these figures can be supportive of any growth in household consumption and investment.

And, of course, the above figures fly in the face of claims of robust jobs growth and rapidly declining unemployment. Just as they fly in the face of the claims that our economic growth is driven by knowledge-intensive R&D-rich innovation economy.

25/11/2014: Irish Fiscal Council: More of Troika Speak, Less of Original Insight

The Irish Fiscal Advisory Council [an independent body of sort with some relevance of sorts, if only as a 'check' on the Government] has issued its assessment of the fiscal situation in Ireland. Just in time after the Troika review. Unsurprisingly, the Council mirrors the IMF (and the Troika analysis - covered here: http://trueeconomics.blogspot.ru/2014/11/21112014-latest-troika-report-risks-no.html.

Per Council:
"The Government will likely accomplish the important milestone of reducing the deficit to below the 3 per cent ceiling in 2015. The debt to GDP ratio is beginning to fall, albeit from a very high level. At the same time, economic recovery appears to be taking hold and risks to the Government’s balance sheet have subsided considerably as the outlook for both NAMA and the banking sector has improved." They wouldn't notice that debt/GDP ratio and deficit/GDP ratio were both helped quite a bit by the switch to new National Accounts classification in 2014. See Eurostat data here: http://trueeconomics.blogspot.ru/2014/10/21102014-of-statistics-ireland-and.html. Then again, Troika too 'missed' that point, so predictably, everything is down to the miracles of growth (see: http://trueeconomics.blogspot.ru/2014/11/23112014-half-of-irish-growth-miracle.html).

The Council shows some teeth, however, pointing the obvious: "…Budget 2015 reflects a missed opportunity to move the public finances more decisively into a zone of safety by following through on previous plans. The deficit is projected to be more than one percentage point higher in 2015 than could have been achieved if previous plans had been implemented. All else being equal, the larger deficits result in the debt level being roughly €10 billion higher in 2018 than if previous plans had been adopted."

And then there is the risk of pro-cyclicality - the new boggeyman  of European fiscal policy. In this context, "…Budget 2015 was marked by an absence of a well-specified plan for the public finances beyond 2015. Published tax revenue projections assume no change in policy despite Budget commitments to lower taxes in the coming years. Moreover, the Budget spending profiles assume unchanged expenditure after 2015, despite higher figures being set out in the Comprehensive Review of Expenditure 2015-2017 (CER 2015-2017). Expenditure ceilings have been raised again, however, the CER 2015-2017 does not adequately address how well-known expenditure pressures will be accommodated in the coming years."

Oh dear, that stuff is almost entirely Troika-speak and hardly much new. All in, this makes the Fiscal Council report if not outright redundant, at least repetitive. Which might be the point of the exercise, to keep the pressure on in hope that politically-expedient boom and bust spending and tax cutting are not making a return in Ireland ca 2015.

Good luck to all ye, hoping.

24/11/2014: External Debt Maturity Profile: Russia H1 2015-H1 2016

I covered recently Russian capital outflows data (see here: http://trueeconomics.blogspot.ru/2014/11/23112014-russian-economy-capital.html). 

Now, lets take a look at the data for External Debt maturity profile for the economy. The reason for why this is of importance is that currently Russian enterprises and banks (even those not covered by the sanctions) have effectively no access to dollar and euro funding in international markets, making it virtually impossible for them to roll maturing debts. 

Chart below shows the quantum of debt maturing over the 18 months between January 2015 and through June 2016. The total amount of maturing external debt to be funded by Russian state, banks and enterprises is USD138.796 billion. 

Of this, just USD4.03 billion is Government debt (or just 2.9% of the total maturing debt). Which pretty much means there is no public debt sustainability issue in sight as the result of the sanctions no matter what debt ratings are issued to the sovereign.

A third of total external debt coming due in H1 2015 through H1 2016 is banks debt (33.6% of the total) amounting to USD46.627 billion. There is a steep curve on banks funding requirements in H1 2015 at USD20.646 billion, scaling down to USD15.19 billion in H2 2015 and to USD10.791 billion in H1 2016. All of these relate to either loans or maturing deposits, with zero exposure to debt securities. Much of it is, therefore, down to interbank lending markets.

Almost two thirds of external debt coming due over the next 18 months is Non-financial Corporate loans (USD65.311 billion or 63.5% of the total). This excludes debt liabilities to direct investors which add additional USD21.245 billion to the above total for the sector and the above total maturing debt. However, as it is written against the equity holders, these debts can be restructured separately from the direct and intermediated debts. Again, H1 2015 represents the highest burden on debt rollover/repayment with USD25.41 billion of loans maturing. This declines to USD21.1 billion in H2 2015 and to USD18.8 billion in H1 2016.

Chart below summarises:

So to summarise, Russia is facing steep repayment schedule on non-Governmental debt in H1 2015, declining in H2 2015, with even more benign demand in H1 2016.  While Russian Central Bank has funds to cover the above volumes of redemptions, even allowing for adjustments to the funds for liquidity risk, the quantum of debt maturing in the next 18 months is high and will require some significant strain on cash flows of the enterprises and possibly significant injections of funding from the state.

The obvious question is: how much equity will migrate from private ownership to state ownership in the latter case.

23/11/2014: Bruegel on Human Capital Mobility

Couple of interesting charts (and links) via Bruegel relating to the issue of human capital:

First, the flow of higher quality human capital across borders:

http://www.bruegel.org/nc/blog/detail/article/1483-brain-drain-gain-or-circulation/?utm_content=buffer04864&utm_medium=social&utm_source=twitter.com&%E2%80%A6

And international students participation:

http://www.bruegel.org/nc/blog/detail/article/1460-student-mobility-in-europe/

Very strong correlation in the above chart with quality of education system by country:

23/11/2014: Half of Irish Growth Miracle is Accounting Trickery?

Those who read this blog, follow me on twitter or heard me speak recently at the conferences covering Irish economy would know that I have consistently estimated about 1/2 of Irish H1 2014 growth figures to be attributable to something strange that is happening between the official trade statistics we get for goods exports and the national accounts estimate of same exports. The gap is massive and is running now at roughly 7 times the historical average gap.

You can also see some of the same discussion here: http://trueeconomics.blogspot.ru/2014/10/18102014-irish-economy-state-of-recovery.html

And in print here: http://trueeconomics.blogspot.ru/2014/11/2112014-irelands-recovery-economic.html

Now we have another economist pointing the same, except this time via the august Irish Times platform that is, of course, off-limits for myself.

Still, good to see someone else, especially from the Officially Approved Economists' list, is putting forward same arguments via the Official Paper of Record... Here is their link: http://www.irishtimes.com/business/sectors/transport-and-tourism/member-of-fiscal-policy-group-says-growth-rates-artificially-high-1.2011091#.VHAkeF1Tmq%E2%80%A6

23/11/2014: Russian economy: Capital Outflows Trends

Russian Capital Outflows have been pretty extreme so far in 2014 - totalling USD85.3 billion in the first nine months of 2014, up on 44.1 billion net outflows in the same period of 2013, USD45.8 billion in 2012 and USD46.9 billion in the same period 2011. At annualised rate, current outflows are running at around USD114 billion, which is the worst year after 2008 outflows of USD133.6 billion.

More than half of these outflows fell on Q1 2014 (USD48.6 billion) with *only* USD36.7 billion in Q2 and Q3. In fact the rate of outflows in Q3 was below the average for 2008-present period (USD18.7 billion per quarter) and over Q2 and Q3 average rate of outflow was below average as well. 

Overall, Net Capital Outflows for Q1-Q3 2014 exceeded average rate of outflows by USD29.3 billion. 

Looking at the composition of outflows, USD16.1 billion of net outflows over the first nine months of 2014 came from the Banking sector - which is worse than the same period 2013 (USD10.9 billion) and 2012 (inflows of USD9.6 billion), but better than the same period of 2011 (outflows of USD17.3 billion). 2008-present quarterly average Banking sector net outflows stand at USD3.72 billion, which suggests that current nine months cumulative outflows exceed average by about USD4.9 billion.

Non-financial sector net outflows for 9 months through September 2014 stood at a massive USD69.2 billion, which is well ahead of same period outflows in 2013 (USD33.3 billion), 2012 (USD55.4 billion) and 2011 (USD29.8 billion). On average, since 2008, net non-financial sector capital outflows are running at USD14.93 billion per quarter. This implies that current running rate of outflows from the non-financial sectors (for Q1-Q3 2014) is some USD24.4 billion ahead of average.

Chart above clearly shows that Q3 2014 non-financial sector outflows have been the worst since Q4 2008, while Q1 2014 outflows in the sector were the 5th worst since the start of 2005.

Overall, the above shows that while some of the media claims may be overstating the extent of the capital outflows deviation from their historical (pre-Ukraine crisis) trends, at the same time, current rates of outflows are of significant concern and cannot be sustained for much longer. The core issue is that non-financial sector outflows can only be stopped or significantly reduced by imposing some sort of capital controls - either in their direct form or via de-offshorization of the domestic investment.

The former will be a very tough pill to swallow for all sectors of the economy and will damage significantly the ruble. The latter is a political sensitive issues as it would involve change in the status quo practices whereby medium-sized and larger enterprises offshore aggressively investment funds to remove these out of the reach of domestic authorities.

Interestingly, if President Putin does follow through on the promise of substantial reforms aimed at reducing state interference in the economy and alleviating pressures arising from corrupt state officials practices, the de-offshorization of the private sector investment can be put in place much less painfully and much more efficiently. See more on this here: http://trueeconomics.blogspot.ru/2014/11/19112014-two-articles-on-russian.html