Economy domine*

Several interesting stories on the UK economics front today. Here's a sampler.

The latest employment numbers from the ONS are tricky to interpret, given some of the gloomier data we've seen on other fronts lately. Here are some extracts from the report on the BBC website:

UK unemployment fell 26,000 in the three months to May to 2.45 million, official figures show.

The unemployment rate was 7.7%, according to the Office for National Statistics (ONS), down from 7.8% in the previous quarter.

The employment report said that the number of long-term unemployed fell by 37,000, although there was also an 11,000 increase in the number of people out of work for less than a year.

The number of 16 to 24-year-olds out of work fell by 42,000.

The public sector workforce shed 24,000 during the three months to May, far less than the 104,000 new positions created by the private sector.

It's true that the separate benefits claimant count increased, but that series is hard to interpret right now for technical reasons. The sharp increase in private sector employment is a welcome development, one that's more than a little tricky to square with signs that the economic expansion is running out of puff. Employment is usually seen as a lagging indicator, but it's still surprising to see so many jobs being added when the outlook is so uncertain, especially given that the number of jobs lost during the recession was so much smaller than expected. If employers collectively are wrong about where the economy is going next, the employment market could hit the buffers very hard in the next few months, but it's worth at least considering the possibility that the overall outlook is not quite as bad as some of the recent data have suggested.

Moving on, the Office for Budget Responsibility has published new data designed to reveal the true extent of the Government's financial liabilities. Here are some extracts from the executive summary (be warned, the full report runs to 126 pages):

- the net present value of future public sector pension payments arising from
past employment was £1,133 billion or 78.7 percent of GDP at the end of
March 2010.

- the total capital liabilities arising from Private Finance Initiative contracts
were around £40 billion or 2.9 per cent of GDP in March 2010. (Only £5.1
billion of these were on the public sector balance sheet in the National
Accounts and therefore included in PSND and PSNW);

- there were a further £105 billion (7 per cent of GDP) in provisions for future
costs that are expected (but not certain) to arise, most significantly the hard
to predict costs of nuclear decommissioning; and

- there were also £207 billion (14.4 per cent of GDP) of quantifiable
contingent liabilities – costs that could arise in the future, but where the
probability of them doing so was seen as less than 50 percent. These
included £175 billion of guarantees and similar undertakings arising from
interventions to stabilise the financial sector.

The overall public sector net liability .... was £1,216 billion
or 84.5 per cent of GDP at end-March 2010, compared to a PSND (public sector net debt)of £760 billion or 52.8 per cent of GDP at the same date.

Keep all of this in mind the next time Ed Balls or Ed Miliband denies being a deficit denier. A large chunk of this debt mountain was run up by the last government at a time when the economy was expanding rapidly, meaning that such borrowing was not only unnecessary but economically illiterate. The fact that they (well, specifically Gordon Brown) went to such lengths to conceal it (see especially the £40 billion in PFI liabilities) just makes it worse.

Lastly, we haven't had a pop here at Anatole Kaletsky in ages. In today's Times (behind the paywall) he has a mostly reasonable piece about the Eurozone crisis, but I was brought up short by this remarkable little statement:

Italian bonds, trading a week ago at 100 per cent of their face value...

Say what? I spent more years than I care to remember looking at more bond markets than you can shake a stick at, and I can never recall a single day in any of those markets when more than one or two bonds were trading "at 100 per cent of their face value". Mathematically, it's all but impossible for it to happen. Whatever Kaletsky's merits as an economist (discuss among yourselves), he's once again shown that his grasp of how financial markets work is more than a little shaky.

* By far the most-read post on this blog over the past year has been "Shine on you crazy Barclays", on 7 September 2010. I figure a dip even further back into the Pink Floyd catalogue can't hurt.