Economy well placed to continue growth if global expansion continues
Last week’s CSO labour market statistics for the final quarter of 2015 showed a slowdown in the pace of job creation in the economy and an associated deceleration in the rate of decline in unemployment writes Oliver Mangan Chief Economist atAIB.
Employment rose by 4,700 or 0.2% in the fourth quarter. This followed increases of 9,600 in quarter three and 16,000 in the second quarter. The data, though, can vary from quarter to quarter.
If we take 2015 as a whole, employment rose by 44,000 over the course of the year, a rise of 2.3%. Furthermore, the bulk of the job growth was in full-time employment, which rose by over 39,000, with a gain of 5,000 in part-time employment.
Another positive sign is that the job gains in 2015 were broad-based, with employment rising in eleven of the fourteen sectors in the CSO survey. Construction saw the largest gain, with jobs growth of 10,000, or 9.3%, in the year. Not surprisingly, Dublin saw the biggest jump in employment, with an increase of 23,000 or 4%.
The West is the only region of the country that did not see employment rise in the past two years. Overall, total employment now stands at 1.975 million, its highest level since early 2009. It has now risen for thirteen consecutive quarters from its low point of 1.83 million reached in 2012. The steady rise in employment, combined with the emigration seen in recent years, has resulted in a sharp fall in unemployment.
The unemployment rate stood at 9% in December. It is now well below the peak unemployment rate of 15.1% reached in early 2012. The CSO data show the number of unemployed stood at 196,000 in quarter four, down from 223,000 a year earlier and a peak level of 327,000 reached at the start of 2012. Thus, unemployment fell by 27,000 in the past year.
We are a bit suspicious, though, of the unemployment figures for the fourth quarter, which showed a fall of just 1,700 in the period. We note that the Live Register, which usually provides a very good indication of the trend in unemployment, fell by 10,000 in the final quarter of last year from the previous quarter. We think the fourth quarter data are an aberration and expect to see a marked pick-up in jobs growth and a resumption of the strong downward trend in unemployment in 2016.
In our view, the jobless rate could fall to close on 7% by the end of next year. Obviously, the key factor in this regard is that the economy continues to perform strongly in 2016 and 2017.
While downside risks have increased, the general expectation is that the global economy should continue to expand at a moderate pace, most notably our key export markets of the US, UK and the eurozone. Ireland is well placed to continue growing strongly in these circumstances.
Certainly, the data published on Ireland for the opening month of 2016 suggest that the economy has started the year on a very strong footing. Tax receipts were strong in January, rising by over 7% year-on-year. Car sales were up by over 30% on the same month last year. Consumer confidence climbed to its best level in 15 years. The Live Register fell by almost 5,000 in the month, an exceptionally large decline.
Meanwhile, survey data also point to a very strong start to the year for the economy. The Purchasing Managers’ Index (PMI) for the service sector rose to 64 in January, its highest level in almost ten years. The construction sector PMI rose strongly in the month, climbing to 63.6 from 58.6 in December. The manufacturing PMI was at 54.3 in January, well above the level in most other economies.
Thus, while financial markets globally have had a difficult start to 2016 amidst mounting concerns that the world economy might experience a severe slowdown this year, there is little sign from recent data of any weakening of activity in Ireland. Caution, though, is still required given the uncertain outlook for the world economy as well as the upcoming Brexit referendum in the UK.
The Irish economy is well placed to continue growing strongly as long as external events remain in its favour.