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Jobs growth and property rises the icing on recovery

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Signs of recovery

Signs of recovery

Quarterly change in employment

Quarterly change in employment

% change in employment by sector

% change in employment by sector

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Signs of recovery

In the first half of 2014, the single most important and reliable measure of what is happening in the economy - the number of people at work - was one of the very few indicators to suggest that the recovery was weakening rather than strengthening.

Given the importance of the indicator, the employment record from January to June gave cause for concern - most particularly a concern that a period of "jobless growth" (a not uncommon phenomenon) might have been underway.

But the publication last Wednesday of the quarterly jobs report dispelled much of this concern.

The massive survey that statisticians conduct every three months on the working patterns of Irish households showed that employment growth accelerated considerably in the third quarter of the year.

A net increase in the numbers at work - up more than 10,000 in just three months (adjusted for seasonal fluctuations) - was not far off the quite miraculous rates of employment growth recorded after the labour market very suddenly turned around in 2012, as the first chart illustrates.

That turnaround was as welcome as it was unexpected. Even after the worst of the jobs destruction in 2008-09, still-significant declines in employment continued during 2010, 2011 and for most of 2012. But then things changed, resulting in Ireland recording the third-strongest employment growth among the 28 members of the EU in full-year 2013.

If that was unexpected, then so was the slump in the labour market which took place in the first half of 2014. Just as most other indicators were pointing to a widening and deepening of the recovery, net employment creation tapered off.

Among the many reasons to be concerned was that if the pace of jobs growth registered in the first half of the year were to continue, it would take a quarter of a century to return to the all-time peak in employment, recorded in 2008.

Things now look much better. If the rate of growth in the third quarter were to continue, returning to peak employment would take "just" seven years.

(It is worth adding that while the numbers at work have increased by 84,000 since the low point in mid-2012, there are still almost a quarter of a million fewer people employed in the economy now, compared with the peak).

Another broadly positive aspect of jobs figures are the sources of growth, with the fastest growing sectors tending to be the ones in which long- term growth potential is strong, as the second chart shows.

The increase in agricultural employment has been off the scale since 2012, up a whopping 30pc.

Even if this overstates the case - and the statisticians who compile the numbers warn that it probably does (which is the reason it is not included in the second chart) - the trend is strongly positive. And given Ireland's natural comparative advantage in agricultural production, seeing more employment in the sector is particularly good because it is sustainable and home-grown.

The second strongest growth in jobs over the past two years was in the "professional and scientific" sector. The numbers at work in this category were up by more than 15pc.

As people in this sector tend to be highly paid and drivers of innovation, which benefits the wider economy, it is the kind of employment that policy-makers everywhere seek to grow. In third and fourth place in the jobs growth league were the hospitality and construction sectors, with both clocking up double-digit growth in the numbers employed over the past two years.

As tourism is on course to become the world's largest industry (if it isn't already), the recovery in the sector is particularly welcome.

As for construction, it appears to be rebalancing, having gone from being much too big to being not big enough.

With just over 100,000 employed in the sector, there is scope for tens of thousands of extra jobs if the industry is to account for a share of total employment that is normal for peer economies.

The growth in jobs has continued to result in a decline in unemployment, with the numbers formally out of work falling below 240,000 in the third quarter for the first time since the economy went pear-shaped.

On this basis, the statisticians found that in October the rate of unemployment (i.e., the share of adults in the labour force who are unable to find any work) fell to 10.9pc. On its current trajectory, the jobless rate will fall below the psychologically important threshold of 10pc by late next summer.

If Wednesday's news on jobs and joblessness was almost universally good, a separate set of figures released last Tuesday may explain why the feel-good factor is still lacking. Those figures showed that most people's pay packets are showing no signs of becoming better padded.

While pay before tax is going up in a small number of sectors, it is falling in most.

Whether measured on a weekly or an hourly basis, average earnings in the third quarter of 2014 were down - compared both with the second quarter of the year and the third quarter of 2013.

With most people suffering slightly lower gross incomes, one can see - to some extent at least - why the prospect of water bills has riled so many people. And all the more so since real gross incomes for those at work have been stagnant - at best - for so long.

The negative income effect may be partially offset by a positive wealth effect. The value of households' assets have been rising over the past two years.

That has happened because financial assets are appreciating - thanks to a bull run in stocks and bonds - and, even more importantly for most people, because property prices have rebounded.

Furthermore, evidence of the recovery in the residential homes market came last Wednesday with the publication of house price data.

Most notable was the rise in prices outside the capital. While non-Dublin prices stopped collapsing in early 2012, they didn't rise, as happened in the capital. Rather, they bumped along the bottom, reflecting the supply glut beyond the pale owing to excessive building up to 2007.

But oversupply now appears to be less of a factor. In the six months to October, home prices outside the capital have risen by almost one-tenth. That is the first clear and sustained increase since the housing frenzy ended.

It is yet another sign that the effects of one of the most severe slumps any developed economy has suffered in living memory are being consigned to history.

Sunday Indo Business