The greater good is the labour market, stupid
The latest Quarterly National Household Survey from the CSO, which measures employment in the economy, showed that the number of full-time jobs dropped by 4,300 in the 12-month period to April of this year.
The construction sector is the biggest casualty, with a decline of 26,800 jobs over the past year. Manufacturing is also under serious pressure — a long-established trend.
For anybody who observes what is going on in the Irish economy, the survey results could not have come as a surprise and has been well flagged for some time. However, the report is referring to a period that is now almost six months old and too historical to have real meaning.
It appears from anecdotal evidence that the situation has deteriorated much further since April, with construction and manufacturing likely to have shed considerably more jobs.
Other sectors may not have fared too well either.
The Irish labour market is now also going through a painful adjustment after years of expansion.
Granted, we still have many more people in employment now than ever in our history, but the trend tends to become more important than the absolute level in terms of influencing consumer confidence and consumer behaviour.
The trend is still deteriorating and that is having a key influence on consumer behaviour.
This week alone we got news of the loss of 250 jobs in a civil engineering firm in Cork and 240 jobs in Boston Scientific in Tullamore. These announcements are just part of a trend and unfortunately the trend is likely to continue for a while longer. Such job losses in smaller towns such as Tullamore can have a disproportionate impact on smaller rural economies.
Against this background of falling employment, it is likely that consumer confidence and consumer spending will continue to suffer and it is also hard to imagine any stabilisation of the housing market while this labour market trend continues.
The biggest factor that influences housing affordability is the stability of employment and earnings rather than interest rates or any Government measures.
It is clear to me that until the labour market shows clear signs of bottoming out, the house-buying public will remain very cautious. If house buyers are reluctant to buy, then house prices will obviously continue to fall. It does not take a rocket scientist to figure that one out.
The key role for the Government is to try and make the business environment as friendly and flexible as possible, so that employers will seek to maintain employment levels. In this context it cannot seek to fall back on business to make up the shortfall in revenues through higher taxes, local authority charges or a myriad of other state costs.
Trade unions must also recognise that they will have to adopt a very conciliatory approach to employers in terms of wage demands.
If the labour market were to stabilise and employment growth to come back on track, consumer confidence and spending would recover quickly, demand would materialise in the housing market and the public finances would quickly come back into a virtuous cycle.
In framing the December budget the key focus of the Government has to be on employment. All other interested parties must also play their part. Having an official agency issuing advice to consumers to shop north of the border is not helpful and in fact is utterly irresponsible.
We will all have to make sacrifices over the coming year, but we must keep a focus on the greater good. That greater good is the labour market, stupid.
Jim Power,
chief economist,
Friends First
