Economic recovery: pay hikes, insecure bosses, frolicking cows

Koslapp: in Swedish, it means the release of the cows. After a long dark winter of bovine boredom in lockdown, the ruminants run out into the fresh spring grass, a-jumpin’, a-gambollin’ and a-munchin’, watched by picnicking Nordic families who share the sentiments.

We’re seeing something similar in economic figures. The Purchasing Managers’ Index (PMI) gives us our freshest indicator of what’s been happening recently.

For May, the release of pent-up frustration is evident in the strongest figures we’ve seen, at least in the 23 years the data has been collected for Scotland.

We have, collectively, been behaving a bit like frustrated but now less constrained Swedish cows.

That’s not to say we’re at record output and record employment. The peak was in February last year, before an unprecedented slump into April, and a 2020 fall in output of around 10%.

April calamity

Returning to the pre-pandemic levels will probably take until at least the end of this year or early next year, though the USA and China have got there already. Indeed, the G20, representing much of the world’s economy, has collectively got back into positive territory.

The UK took an unusually big hit, so it’s got a lot of catching up to do. It made good progress in April, according to the Office for National Statistics – up by 2.3%, and reaching a level 3.7% below the previous peak.

The most recent Scottish government figures tell us output grew 2.3% in March, and reached 5.7% below peak, so not much different.

Compare that with the calamitous first full lockdown month of April last year, when output was down by 25% on the peak.

The most recent Gross Domestic Product figures might have looked even better if April hadn’t seen so many offshore oil and gas platforms having planned maintenance, with production that month down by 15%.

That overall picture masks big differences in sectors. Some are ahead of the previous peak, but accommodation and food services in April was 40% below peak.

Jobs mismatch

Instead of total output, these PMI figures show us the rate of improvement on the early 2021 lockdown: a record acceleration in output, new orders and recruitment. Even with such records, Scotland lags the rest of the UK in the release of economic activity.

Manufacturing takes the lead, and the giant services sector is not far behind. It’s plain to see, from the figures and from anecdotal evidence, that parts of the hospitality sector are struggling to meet the surge in demand, with new staff, struggling to implement new rules on social distancing and table service.

There are people looking for jobs and plenty of employers looking for recruits. Vacancies have been on the rise, in Scotland up to 43,000 in May.

Among the problems is a mismatch between the skills on offer and where they are: a case of “wrong workers in the wrong place at the wrong time”.

It seems many young people have taken a step off the jobs treadmill, many with the help of furlough, and either discovered they don’t much like the unsocial hours of bar and restaurant work – least of all while unvaccinated – or they have found jobs that make better use of their skills. It seems the next cohort of recruits into lower-paying jobs in hospitality have yet to sign up.

For that reason, The Economist this week is reporting that lower paid workers in Britain are in a strong bargaining position on pay, and for the first time in around 20 years. The ONS tells us that median pay in Scotland was up 3% in April.

That is one of the factors that has economists concerned about inflationary pressures. Another is a red hot market for homes, with price inflation running at more than 10%, fuelled by a tax break coming to an end in England, but also going very strongly in much of Scotland. The pressure is growing for the Bank of England to reign in its quantitative easing and the mortgage market.

Unviable tourism

Tourism is only one part of hospitality, but an important one, and we have yet more data from the Moffat Centre on Tourism at Glasgow Caledonian University. It covers 179 organisations, representing more than 300 visitor attractions.

As circulated by the Scottish Tourism Alliance, it looks like visitor attractions are opening up, but far from positive about their finances:

• 71% of the sector is open, but only 10% is open and making profits. Fewer than quarter say their attraction is operating at a financially sustainable level
• Compared with 2019, more than half of visitor attractions have a drop in numbers of more than 70%
• More than half have turnover down by more than half. Less than 2% have more turnover than in 2019
• Under a fifth of businesses are optimistic about their financial performance over the next 12 months, and only a third are optimistic
• An eighth of them say government support is either “poor” or “dreadful”, but two-fifths are positive about it

The data keeps flowing from the self-caterers’ association. This is one sector which appears to be doing well, at least in the smaller operations for single families. Larger properties where several households get together struggle with the rules on households mixing.

The association found a third of members are open and profitable. Nearly as many are open but with reduced occupancy.

Nearly half (46%) are operating at an economically unsustainable position, with nearly three-quarters (74%) concerned about the viability of their business if restrictions persist.

Wild and open

A further survey for the outdoor, nature and adventure sector, represented by the Wild Scotland trade group, has been doing its own survey. With 116 responses, it found:

• 84% of the sector is currently open, but only 11% are operating as normal. More than half are operating less than 50% capacity, largely due to the size of group they’re allowed, and social distancing
• 70% do not think their businesses are sustainable, a fifth have made staff redundant, and of those that are open, more than a third say the are unviable

So for all that there is a feelgood factor of people getting out and about again, and bookings in some sectors are very strong, the evidence from the tourism sector is that the continuing restrictions and the outlook remain exceptionally tough.
Source: BBC

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