Pete Wargent blogspot

Co-founder & CEO of AllenWargent property buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place), and CEO of WargentAdvisory (providing subscription analysis, reports & services to institutional clients).

5 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he is one of the finest property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

"Pete is one of Australia's brightest financial minds - a must-follow for articulate, accurate & in-depth analysis." - David Scutt, Business Insider, leading Australian market analyst.

"I've been investing for over 40 years & read nearly every investment book ever written yet I still learned new concepts in his books. Pete Wargent is one of Australia's finest young financial commentators." - Michael Yardney, Australia's leading property expert, Amazon #1 best-selling author.

"The most knowledgeable person on Aussie real estate markets - Pete's work is great, loads of good data and charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, and author of the New York Times bestsellers 'End Game' and 'Code Red'.

"The level of detail in Pete's work is superlative across all of Australia's housing markets" - Grant Williams, co-founder RealVision - where world class experts share their thoughts on economics & finance - & author of Things That Make You Go Hmmm...one of the world's most popular & widely-read financial publications.

"Wargent is a bald-faced realty foghorn" - David Llewellyn-Smith, MacroBusiness.

Thursday, 18 December 2014

UK Recovery Continues - Wages Up, Employment Up, Unemployment Down

Commentary

It's been pretty interesting to watch UK economic commentary in recent years.

After most commentators failed to predict the recession or a crisis it seems as though to be "credible" analysis must now focus only on negatives.  

To identify risks is one thing, but to continue reporting only negatives right the way through the recovery has been odd to watch. 

Ongoing commentary has told us all the reasons why there won't or can't be a recovery, perhaps because few journalists are brave enough to report good news, even when the news is unambiguously good.

Take the latest employment figures from the Office for National Statistics as an example, the findings of which were...well, all good:
  • The main findings of this release are that employment continued to rise and unemployment continued to fall. These changes continue the general direction of movement since late 2011/early 2012
  • For August to October 2014, 73.0% of people aged from 16 to 64 were in work, up from 71.8% for a year earlier
  • The unemployment rate for August to October 2014 was 6.0%, down from 7.4% for a year earlier
Employment Surges Again

Employment surged higher by another 115,000 from the May-July 2014 period (the ONS uses an unusual approach of comparing three month periods) to be +588,000 over the year.

Total employment has pushed higher to a record 30.8 million people over aged 16 in work, although perhaps the rate of growth is now slowing.

The employment rate is up with 73 percent of all of those aged 16-64 employed up from 71.8 percent one year ago.

Good news!


Wages Up

Average weekly earnings excluding bonuses were up by 1.6 percent in the year to October, well ahead of the rate of inflation.

That's the first time in six years we can say that earnings are genuinely outstripping inflation.

As the cricket commentary said when Merv Hughes scored his first Test Match run: "We make no apologies for getting excited about this, it's been a long time coming!"

It has indeed been a long time coming, and there is still too much slack (several percent) in the labour market for wages growth to be strong.

But, nevertheless, good news!

Unemployment Down

Unemployment fell by another 63,000 in the to 1.96 million across the comparative 3 month period.

The unemployment rate has declined to 6 percent from 7.4 percent a year ago following an enormous drop in the number of unemployed of 455,000 over the past year.

The unemployment rate is the lowest in 6 years and appears to be heading lower.

More good news!


It's a pretty decent report across the board. Let's see whether it is reported as such.

As a textbook swing voter I couldn't care a fig whether jobs are added under Labour or the Tories but so much commentary is politically motivated these days to the extent that the highlighting of any good news at all is dismissed as the role of "Tory trolls".

Steer clear of the politics and listen closely to the markets!

Deficit

The UK does have some serious challenges with its deficit, with the numbers of benefits claimants one of the more emotive and contentious issues.

It's a difficult subject to tackle without sounding like a fully paid up Thatcherite, so I won't here, but realistically if you ask Brits of working age they'll likely reel off examples of failings in the system.

Two of the more sensationalists right wing newspapers ran pieces claiming that those claiming disability benefit in Britain had trebled in the 20 years to 2011. 

How much this trend was related to the ageing of the population was somewhat less clear - it's usually best to go to quality independent sources for reporting of the facts - but in the event the government undertook a crackdown which resulted in hundreds of thousands of claimants being found to be fit for work.

Whatever your stance on the UK's benefits culture, it seems likely that the system will remain under scrutiny.

This is quite topical - Channel 5 ran a show this week documenting how £60,000 of UK benefits had been claimed to build a house in Romania.

This mirrored a 2011 story by the Daily Mail which reported how UK benefits were (not illegally) being used to construct mansions in Romania. 

Inflation Declines

With the price of oil declining very sharply, UK inflation has fallen to a 12 year low of just 1 percent in November, largely driven by lower fuel and transport costs.


For this reason the Bank of England interest rates will stay on hold for a while yet at 0.50 percent.

The Monetary Policy Committee is split by 2 votes to 7 on this point.

Rate hikes may come in due course but with inflation so far below the target range there will be little rush in that regard, particularly as there are signs that the rate of employment growth may be slowing a touch.

House Prices

House price growth in the UK has slowed considerably and is now negative in many if not most regions.

Not dissimilarly a good deal of commentary focused on the likelihood of a Japan-style price crash in London through the financial crisis, neatly foreshadowing an extraordinary 81 percent boom in mix-adjusted London house prices between March 2009 and August 2014.

We have noted "on the ground" in the past few months that sentiment has definitely now slowed in London and the heat has come out of the market.

Unsurprisingly the "high yield" type residential investments (i.e. those excluding London and the south-east) have proven to be a poor choice over the past decade except for those investors who had the nous to buy counter-cyclically.


The ONS index figures below are not seasonally adjusted, but the recovery has now stalled in many areas - before it ever really got going in many areas outside London.

The south-east seems likely to record reasonable gains as the ripple effect flows outwards from London, elsewhere the outlook is dimmer.