Real Wages & Retail Sales: A Mystery in the Data
Today’s Labour Market Statistics contained very worrying news on pay. The annual growth rate of total pay (3 month average) fell sharply to 1.4% in January, down from 1.9% in December. Regular pay growth (i.e. excluding bonuses) also fell, from 2.0% to 1.7%.
Inflation, as measured by RPI, has fallen from a peak of 5.6% in September last year down to 3.9% in January. Whilst this is obviously very welcome, the headline fall of 1.7% over states the impact on household finances. During the same period total pay growth has slowed from 2.3% to 1.4%, so whilst the picture for real wage growth has improved somewhat, it is still very poor. A fall in the rate of inflation of 1.7% has to be offset against a fall in wage growth of 0.9% during the same 5 month period.
All of whihc makes the fact that retail sales in January were surprisingly strong something of a mystery. Weak nominal wage growth and falling real wages are very hard to square with this more upbeat data. Especially as the Bank of England’s most recent Lending to Individuals release shows that the growth of consumer credit (although up slightly in January) remains very weak at 2.3% per annum.
It’s hard to see how the recent bounce in retail sales can be maintained without either (and preferably) stronger wage growth or a pickup in consumer borrowing. Perhaps this explains the BRC’s most recent survey data, which suggested a slowing of retail spending in February.
The pay growth figures will a key indicator to watch throughout 2012.