Friday 15 December 2017

Strong jobs growth is reason for cautious optimism

In the last four years, an extra 35,000 people have been taken on in the building industry
In the last four years, an extra 35,000 people have been taken on in the building industry
Dan O'Brien

Dan O'Brien

When a recovery begins, and as consumers loosen their personal purse strings, companies tend to have existing employees work extra hours and overtime rather than taking on new people. That is because the cost invested in the hiring and training of new staff could be lost if the upturn peters out and the newly employed person has to be let go.

The same lagging pattern is to be seen in downturns. Because companies have invested in their personnel, they usually want to be sure that cost-cutting is absolutely necessary before they lay anyone off.

As there have been a range of signs that activity in the Irish economy has been slowing over the past six months, last Tuesday's third-quarter jobs report was looked forward to with some trepidation. Heightening the concern was the fact that income tax receipts in the same period grew by a mere 1pc on the same quarter in 2015. Compared to the April-June period just three months earlier, they were actually down by 5pc. All these developments pointed to a slowdown in jobs growth.

The news, when it came on Tuesday morning, was as good as could have been hoped for. The rate of employment growth did slow in the first two quarters of 2016, but it remained strong, at 0.7pc compared to the previous quarter. By the standards of a European country in the 21st century, that is an enviable rate of jobs growth.

But with other, non-employment indicators pointing to a further slowdown in the current quarter, the real question is whether an inflection point has been reached, and whether the recovery is running out of steam after four good years.

It is at such points that I am thankful, having spent a decade in the economic forecasting business, not to be in it any more. When there is momentum in an economy - upwards or downwards - predicting the near term is relatively easy. But when momentum is lost, things can go either way. We appear to be at such a point now. With such elevated levels of uncertainty in the international economy in which Ireland operates, owing to both Brexit, the Trump factor and the looming crisis in Italy, the near term direction of the Irish economy is all the more difficult to call.

As we face into such an uncertain future, what is the current state of the labour market? By industry and region there was plenty more good news than bad or mediocre news in last week's data.

On a sectoral basis the best news came from industry, which includes Ireland's still large manufacturing sector. Despite concerns about automation, the rise of robots and other technological changes which have impacted on the nature of work in the sector, Irish industry has been hiring to beat the band.

Over the past four years, 36,000 jobs have been added, and the rate of growth has been accelerating. More than half of that increase has taken place in the past year alone, a somewhat surprising development given that factory output has been largely stagnant over the course of the year. As of the third quarter, 266,000 people working in industry.

The hospitality sector has been on a similar trajectory, as the tourism industry enjoyed another strong year and foreign visitor numbers reached new record highs. Employment in hospitality has also picked up over the past year, to continue an upward trend since 2012. In the third quarter, just shy of 150,000 people were employed in accommodation and food services. That was 30,000 more than four years earlier.

Along with industry and accommodation, construction is one of the main job types open to the low and medium skilled. Over the past four years, an additional 35,000 people have been taken on in the building industry. In the third quarter there was an unexpected fall in employment on three months earlier - the first such decline in three years - but that is likely to prove temporary. With demand for homes and commercial property strong, there appears to be considerable upside for jobs growth in the industry.

Among the higher skilled sectors, professionals and scientists have been doing well, even if the growth in their numbers at work has been more modest recently. In the third quarter, employment reached a post crash highpoint of more than 120,000 people. That's a full 20pc increase on the low-point of four years ago.

One of the more mediocre findings was that the economy's biggest employer, the retail and wholesale sector, continues to experience a sluggish recovery in employment terms. While the sectors discussed above have hired tens of thousands of people since 2012, the distribution sector has hardly grown at all and employment remains a massive 13pc down on the peak of 320,000 recorded in early 2008.

Across the State's eight regions, developments in employment growth were more uniformly positive over the past year compared to a year earlier, with the numbers at work up in all eight regions in the third quarter of 2016.

On a year-on-year basis, the south-west added most jobs, registering growth of more than 4pc. The south-east and the mid-east came in just behind, with annual employment growth of close to 4pc.

There was good news for the west, which was in fourth place, recording jobs growth of almost 3.5pc in just 12 months. Collectively, the counties of Galway, Mayo and Roscommon had seen next to no employment recovery after 2012. Hopefully, the growth of the past year is a sign that things are finally turning around in the west.

The Border and Midland regions have had almost a mirror image experience compared to the aforementioned three Connaught counties. They had almost no employment growth over the past year, but in the previous three years have been leaders of the pack, with a quite phenomenal 14pc growth in the numbers at work.

The employment gains across all eight regions had the effect of driving down the unemployment rate everywhere (something that doesn't always happen, even though one intuitively thinks that it would). The south west of the country now has the lowest jobless rate, at 6.4pc, down two full percentage points on a year earlier. The neighbouring south east still has the highest unemployment rate, at 10.4pc. The region didn't make quite as much progress as its neighbour, but the rate was down from 12.1pc a year earlier.

Although the border region saw a decline, to 9.2pc, it recorded the lowest fall, at just one 10th of a percentage point over the year, reflecting the low jobs growth registered over the same period.

From a glass half-full perspective, the decent falls in unemployment are to be welcomed. From a half-empty perspective, having a national rate of unemployment at almost 8pc, and having made up only about half of the employment that was lost in crash, it would be a very weak starting point from which to enter even the mildest recession.

Fingers crossed that is not what 2017 brings.

Sunday Indo Business

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