Osborne must heed the Misery Index

 
Allister Heath
FOR years now, American elections have featured discussions of the Misery Index, a simple indicator which sums the unemployment and inflation rates. The higher the index, the angrier the electorate. In 1976, Jimmy Carter famously made a big deal of the index, arguing that Gerald Ford had no right even to seek the presidency given his and his predecessor Richard Nixon’s record. Carter won – only to be crushed by Ronald Reagan in 1980 after the Misery Index jumped further.

The bad news for David Cameron is that Britain’s own Misery Index – the annual percentage rise in the consumer price index (CPI), plus the percentage of the workforce unemployed – is rocketing. While it is undoubtedly still much lower than when inflation was in double-digits in the 1970s, it is the highest since at least 1997, the date from which we have CPI statistics.

Tuesday’s inflation figures were grim, as were yesterday’s jobs numbers. CPI inflation is 4.4 per cent and retail price index inflation five per cent. With total pay up 2.6 per cent on average, the average worker has suffered a real-terms cut of up to 2.4 per cent over the past year. GDP growth was just 0.2 per cent in the second quarter, an estimate which unlike that of some previous quarters feels roughly right and tallies with the jobs stats.

The total number of jobs rose by just 25,000 in the second quarter ending in June, not enough to keep up with the labour force; unemployment rose by 38,000. Fortunately, the private sector continues to create more jobs than the public sector is losing: it even had to compensate for a 28,000 drop in subsidised trainees as well as for general job cuts in the public sector last quarter. Over the past year, a net 251,000 extra jobs were created in the economy, with far more than that added by the private sector.

One possibly scary development was that total weekly hours worked in the economy fell 1.2 per cent quarter on quarter and 0.8 per cent on the year, the second sharpest drop of the last 10 years, following a series of good quarters since the end of the recession. So what is going on? I have long monitored that statistic because it is usually a good measure of the underlying demand for labour, adjusting for variations in part time work. So at first sight, this development looks like a disaster, the equivalent of nearly 200,000 full time equivalent job losses. But the royal wedding took place during the quarter, which means that for one week out of the roughly 13 in a three month period, nearly everybody worked 20 per cent less, and that’s even without the additional holidays taken by millions. Roughly speaking, we should expect to have lost at least 1.5 per cent of total working hours that quarter, compared with a normal quarter. Most likely, therefore, what looks like a crisis is merely a mirage. We shall know for sure next quarter.

But there was plenty of real bad news with a real human cost. The number of people with second jobs is down; vacancies are down; redundancies are up. The number of UK born workers in jobs is down 50,000 over the past year, while the number of foreign-born is up 289,000, showing that too many UK born folk have a skills and attitude problem. Youth unemployment is up, as is that of women (who are disproportionately employed by the state). Unless it gets its act together on jobs and inflation, the coalition could end up like Jimmy Carter, wiped away by powerful economic forces it failed to control.

allister.heath@cityam.com
Follow me on Twitter: @allisterheath