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Ireland – Recovery finally translating into income rise

02 March 2015

When will the two-year old turnaround in the economy be felt in people's pockets and purses, asks Dan O’brien for the Irish Independent? That question has been posed for quite some time - around kitchen tables, in offices, farms and factories and by anyone with even the most passing interest in economics and politics.

Statistics published last week show that in the final months of last year, pay packets grew at the fastest rate - by a very considerable distance - since the crash. What makes the numbers so important is that the pay surge was to be seen in every one of the six different ways in which the levels of wages and salaries are measured.

Weekly pay rates rose at the fastest rate since 2009, whether compared with the previous three months or compared with a year earlier. Hourly pay rose at the fastest rate, again whether compared with the previous three months or a year earlier. And even when bonuses are stripped out, hourly pay rates jumped at the fastest rate, yet again whether measured on an annual or quarterly basis.

Although there is always a risk that a single set of numbers does not prove to be a turning point, other indicators suggest that the return of pay growth is not a flash in the pan.

The strongest reason for believing that salaries will keep rising is what is happening in the jobs market. On Wednesday, figures on the numbers at work in the country were published. It is hard to exaggerate the importance of these figures, not only because jobs are so important but also because employment is the most important indicator of the health of the Irish economy.  An additional 10,000 people were working compared with three months earlier. That brought to almost 100,000 the net increase in employment since the low point of the jobs crisis in mid-2012.

More encouraging still is the detail. Drilling down into the reams of data, one finds that all the non-government dominated sectors have grown employment - in many cases substantially - since their respective nadirs. It is this widening of the recovery that is causing the labour market to tighten in more sectors. This, in turn, has the effect of pushing wages higher.

More timely figures - on dole queues, consumer confidence, tax revenues and purchases of cars and commercial vehicles in January - all provide further evidence that pay is likely to continue growing.

The January figures on the numbers claiming unemployment benefit (an entirely different set of figures from the jobs survey discussed above) pointed to the labour market continuing to move in the right direction in 2015.

The January tax returns suggest the same thing. Underlying revenues were up by one-eighth compared with a year earlier, a very healthy increase, particularly as none of it was accounted for by new taxes. Another indicator available for 2015 is vehicle sales. A good sign of business wanting to invest for the future, and having the wherewithal to do so, is sales of commercial vehicles.

That they jumped a whopping 45% between January 2014 and 2015 suggesting that businesses believe demand is picking up and are prepared to invest to take advantage of it.

If companies are buying vehicles in hugely increased numbers, consumers' purchases of cars were not quite so spectacular.

That said, drivers bought 26% more cars in January this year than in the same month in 2014, pointing to a strong recovery in consumer sentiment.

Confirming the rosier outlook of the man in the street is the monthly KBC/ESRI consumer confidence index. It soared in January, recording the fourth highest monthly jump in its 19-year history, as consumers told the clipboard-wielding surveyors that they were feeling more upbeat than at any time since February 2006.

So it finally looks as if the recovery is starting to deliver for working people.

That is great news for working people. Nor will it be unwelcome for the Coalition partners whose fate depends on a feelgood factor kicking in strongly - and soon.

Much less welcome by Government types yesterday were timely warnings about risks and inertia from Brussels contained in a report on Irish economic and policy matters.

In the new era in which technocrats in the European Commission take much more interest in the economies of EU countries, the analysis from Brussels highlighted many issues that need highlighting if the Irish political system is not to lapse back into its default slumber mode now the pressure of immediate crisis has lifted.

The Commission's findings are worrisome, stating, for instance, that "limited progress has been made in tackling the low work intensity of households, with no progress on improving access to affordable and full-time childcare".

Running the massive enterprise that is the modern state requires never-ending reform, adjustment, and improvement. The failings of the bubble years were mostly sins of omission rather than sins of commission.

The political and administrative system has not fundamentally changed, despite the shocks and traumas of recent years.

If it takes Brussels to squeeze inertia out of the system, thereby preventing yet another crisis in the future, then that should be welcomed with open arms by all.