Wednesday 16 October 2019

Our nation is still booming - despite housing shortages and many risks

There is no sign that the shortage of homes is deterring people from coming to Ireland to live and work.
There is no sign that the shortage of homes is deterring people from coming to Ireland to live and work.

Economy: Dan O'Brien

Every business needs three things: people; a physical place for its people to work; and money. These three inputs - labour, land and capital - are known in the economics jargon as the 'factors of production'. Last week three big sets of figures were published on the first of these factors of production - labour.

The most business-relevant figures from the annual Population and Migration Estimates was that despite all the talk of housing shortages, there is no sign that the shortage of homes is deterring people from coming here to live and work. The numbers arriving in Ireland in the year to April of this year reached their highest level in a decade. From a low point of 40,000 people arriving in 2010, last year arrivals hit 90,000.

Continuing a pattern that is unusual in Europe, a large high proportion of those coming to live here are highly educated. Of last year's crop of incomers well over half - 50,000 - had a third-level qualification or higher.

If the brain gain continues, the brain drain has been lessened. Emigration fell to a decade-long low in the year to April.

Somewhat curiously, Ireland seems to be a more attractive place to live for foreigners than for footloose nationals.

For the latter, outflows and inflows matched almost exactly in the year to April. By contrast, and as has been the pattern for half a decade, more non-nationals arrived than either Irish people coming home or foreigners leaving.

The significant increases in overall net inward migration in recent years have offset another big change in the nation's demographics. Last year the numbers of babies born fell for an eighth consecutive year. Births are now down by a fifth from their peak in 2010. Last year more of the nation's population growth was accounted for by net migration than by what demographer's call the "natural" increase (births minus deaths).

Last week also saw the publication of the Labour Force Survey for the second quarter of this year. Given Ireland's very volatile GDP figures, the employment numbers are the single most important quarterly or monthly set of indicators on the overall state of the economy.

Just as concern about housing shortages have not halted people movement, the looming shock of a hard Brexit and the effects of Donald Trump's confidence-sapping trade spats are nowhere to be seen in the jobs data.

Employment continues to grow rapidly - almost 20,000 jobs were added in the second quarter of the year compared to the first.

Having surpassed the pre-crash employment peak in the first months of the year, another new all-time jobs count record was reached in the April-June period, at 2.25 million.

On an annual basis employment growth accelerated to a very pacey 3.4pc. EU-wide numbers are not yet available for Q2, but first quarter data shows that the rate of Irish jobs growth was running around twice the EU average. Since the turnaround in 2012, Ireland has grown employment by 17.5pc, three time the bloc's average and higher than all but a few mostly micro-states - Malta and Luxembourg top the league by a distance.

In absolute numbers terms almost 400,000 net jobs have been added since the economy turned around six years ago. Of those, the construction sector was the single biggest contributor, with a net increase of over 62,000. Despite this surge, overall employment in the sector remains at almost half its pre-crisis peak, and there is plenty of scope for more growth as the residential side of the industry is still in the early stages of recovery.

The second biggest source of employment growth since 2012 has been the booming hospitality sector. With a gain of over 50,000 net jobs, it now employs more people than ever before.

This is just the latest sign that the VAT break the sector received in distant 2011 has achieved its objective. If the Government is unable to stand up to the industry's lobbying in the forthcoming budget it never will.

The third-biggest source of additional jobs during the recovery has been among the "professional, scientific and technical" category. As of the second quarter, this grouping accounted for in excess of 140,000 workers, up more than a quarter over six years. A final point worth making about the quarterly Labour Force Survey is that it provides further evidence that the housing shortages is not having any significant dampening effect on growth.

It is well known that the housing problem is very much centred on the capital, where rents are sky-high and property prices have been rising at double-digit rates.

Despite this, Dublin's labour force and numbers at work grew at annual rates of 5.4pc and 7pc respectively in Q2 2018. These are blistering rates and wherever the additional people are going after their day's toil, they are finding somewhere to rest their work-weary bones.

The third big data release from the state's statisticians last week was pay figures. As the chart illustrates, they showed that earnings growth continued to power ahead in the second quarter.

Both of the main measures - average hourly and weekly earnings - rose on an annual basis of around 2.5pc, rates that have been enjoyed by workers now for the past year. Although some employers may find this problematic, they can take succour in the fact wage growth is not accelerating out of control. That should also calm the concerns of the worry warts who have been banging on about overheating.

With consumer price inflation as dead as a dodo and plenty of people still to be lured into the labour market (the share of adults working is still well below a decade ago) the focus should be on downside risks to the economy, not upside risks. Enjoy the upswing while it lasts.

Sunday Indo Business

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