Jobs growth slows to 2.0% y/y in Q2 2019 from 3.7% previously

Scale of slowdown looks exaggerated and likely reflects statistical rather than ‘real’ changes in Irish economic conditions

Average jobs growth in first half of 2019 at 2.8% little changed from 2018 increase of 2.9%

We expect some slowing in employment gains as 2019 progresses on Brexit uncertainty

Irish population grows at 1.3% in 2019—six times the pace across the EU 28 as a whole

Population growth favourably balanced between net migration and strong ‘natural’ increase   

Analysis by Austin Hughes, Chief Economist, KBC Bank Ireland

The latest batch of statistics on employment and population growth suggest, on balance, the Irish economy is still recording increases that are exceptionally positive by comparison to other European countries—numbers at work  in the second quarter of 2019 are up 2.0% y/y, twice the pace of the rest of the EU while the population is up 1.3%, more than six times as fast as the EU 28 average.

Rapid economic and demographic changes are not without some downside as difficulties in areas such as housing and health testify. Rapid changes also make it notably more difficult to measure the precise speed  at which the Irish economy is travelling as does the open nature of the economy. Our sense is thatdifficulties in this regard mean today’s data likely understate at least modestly both the positive momentum in the jobs market in the second quarter of 2019 and the rate of net inward migration.

• Numbers at work in the Irish economy increased by an estimated 2.0% y/y in the second quarter of 2019 translating into an extra 45k at work. This represents a marked slowdown from the 3.7% pace (+81K) reported for the first quarter.
• A range of survey evidence in addition to trends in measures such as retail sales suggest the pace of Irish economic growth slowed in the second quarter relative to the first. However, no other high profile  indicator suggests the degree of turnaround seen in the seasonally adjusted jobs data. Today’s figures suggest employment dropped 0.9% q/q, the first quarterly drop in employment in seven years and the poorest quarterly jobs performance change since Q3 2011. As Q1 jobs data show a 2.1% quarterly increase, the strongest rise in twenty years, the employment statistics suggests the Irish economy went from fire to ice since the start of 2019. While there has been some slowing, conditions haven't changed to the extent headline jobs data might imply.
• On average, Irish jobs growth was 2.8% y/y in the first half of 2019,  only marginally slower than the 2.9% growth recorded in 2018. If we annualise the change in the six month average of the seasonally adjusted series, the increase is a slightly slower 2.4%. We reckon these adjusted metrics are a more accurate reflection of the underlying picture, implying of a small but significant easing in the pace of jobs growth of late. We think Brexit related concerns could see jobs growth over the remainder of 2019 broadly similar to the 2.4% annualised pace seen in the first half of 2019.
• It is always the case that Irish economic statistics need to be interpreted carefully but, as Brexit looms closer, there is a notable risk that our understanding of how precisely it might affects employment  could be materially compromised. This concern is heightened by the scale of the gap between the 20.9k drop in the headline figure for seasonally adjusted employment in Q2 and the 7.2k drop arrived at by summing sectoral job changes. Similarly, it is slightly surprising that employment in the Border region has shown the most pronounced improvement of late.
• The step-down in recorded  jobs growth in Q2 has also translated into a marked upward revision to unemployment data. The previous estimate for July 2019 that there were 111k people unemployed in July which translated into an unemployment rate of 4.6% has now been amended to 129k or 5.3% of the labour force. Revisions of this scale make it virtually impossible to use these data as a barometer of overheating pressures and markedly complicate the task in arriving at a meaningful measure of the structural fiscal position used to assess the appropriateness or otherwise of budget policy in Ireland. 

• Also released today were population estimates for Ireland for 2019. They show population growth of 1.3%,  which is just over six times the 0.2% increase in the EU 28. As the diagram below illustrates, Ireland is on an exceptional trajectory in terms of population growth. It should be noted that Ireland’s population growth is the third fastest in the EU after Malta (+3.8%) and Luxembourg (+2.0%). However, both of those countries figures are swollen by rapid net inward migration. In contrast, Irish population growth of 64.5k in 2019 is broadly balanced between net inward migration of 33.7k and a 30.8k ‘natural’ increase (births less deaths). In this context, Ireland continues to have the highest birth rate and the lowest death rate in the EU-28 while the EU-28 as a whole is now seeing deaths exceed births.

  At the margin, we find it slightly surprising that the sustained health of the Irish economy, reported labour shortages in a number of areas some measure of Brexit-related influences didn’t prompt a pick-up in net migration into Ireland in 2019. While the drop from 34k to 33.7k effectively means an unchanged reading, this represents something of a change in trend after a consistent improvement each year stretching back to 2012.

  It could be that housing costs are acting as a deterrent or it might even be the case that high housing costs are compromising the capacity of what is effectively a household-based survey to adequately  capture less formal and possibly more temporary living arrangements of those newly arrived or newly returned. Broadly similar complications resulted in the 2016 census revealing a larger population and a higher historic level of net inward migration than had been thought to be the case. 

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  This non-exhaustive information is based on short-term forecasts for expected developments in the economy and financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalised investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a judgment as of the date of the report and are subject to change without notice.