Month: June 2010

Quarterly National Household Survey for 2010:Q1

The latest QNHS figures have been released. They show the unemployment rate in the first quarter declining from 13.3% in 2009:Q4 to 12.9% in 2010:Q1. This will lead to a downward revision to the monthly Live Register based standardised unemployment rates, which had previously averaged 13.4%.

When the previous QNHS was released, I had expressed concern that the monthly Live Register figures may have started to underestimate true unemployment as expiry of eligibility for benefits saw people still seeking work falling off the Live Register. These figures show that this doesn’t seem to be a set pattern. The Live Register figures would have implied a small increase in the unemployment rate rather than a decrease.

A factor that is perhaps going in the other direction from the issue of benefit eligibility is that the QNHS measure of labour force participation continues to decline. It fell another three tenths in 2010:Q1 to stand at 61.2 percent, down from a peak of 64.6 percent in 2007:Q3. Over that period, male participation has fallen from 74.3 percent to 69.4 percent, while female participation has fallen from 55 percent to 53.2 percent. These declines in participation have been largely concentrated among the under 25s and the over 60s.

If some of these people deemed to be out of the labour force by the QNHS questions are still collecting unemployment benefits, then the Live Register measure will overstate unemployment as measured on the ILO basis.

The composition of unemployment is starting to become more skewed towards the long-term unemployed. In 2010:Q1, there were 112,600 long-term unemployed out of 275,000 unemployed in total. This compares with 49,100 long-term unemployed during the same quarter a year earlier when the total was 222,800.

NTMA Bond Issue: Yields Up Sharply

Amid all the coverage of the banking reports and the other ongoing political stories, very little coverage has been devoted to the fact that the bond markets are again turning less and less positive about Irish sovereign debt.

Today’s NTMA bond auction (press release here) saw it borrowing €1.5 billion, equally split between a bond maturing in 2016 and a bond maturing in 2018. The NTMA press release stresses the fact that the auctions had bids of three times the amount offered. However, look at the yields. As the RTE website points out “The average yield on the 2016 bond rose to 4.521% from 3.663% at the last comparable auction in April and the 2018 bond had a yield of 5.088% from 4.55% last August.”

On the secondary market, the yield on ten year bonds has now given up most of the large decline that occurred after the May 9 announcement of the EU stabilisation fund. In fact, the FT are reporting that, as of yesterday, the spread over bunds stood at 281 basis points, relative to 319 basis points on Friday May 7, and yields are up another 20 or so basis points so far today.

What’s odd, of course, as Paul Krugman has been pointing out is that these developments have not stopped the constant references, both here and abroad, to how well regarded Ireland is by participants in international financial markets. 

To be fair, I think there are a few cross-currents here that go beyond the essential point that Krugman is trying to make. I would echo Krugman’s concerns about the effects of imposing fiscal austerity too soon. The budget deficit for the Eurozone as a whole is projected to be 6.6 percent of GDP this year, so to my mind the need for generalised fiscal contraction today is overstated in light of the weakness of the Euro area economy. However, the bond market’s attitude to Ireland’s position is such that the Irish government has little choice but to adopt an austerity program, a point that Krugman has conceded before.

Furthermore, I’m sure that financial market participants are impressed by the fiscal retrenchment obtained so far. But, at the end of the day, the bond yields give us their judgment on the sustainability of our situation and it’s a thumbs down. The high yields being imposed on us reflect the scale of the initial hole we dug for ourselves as well as policies that maximized the cost to the state of the banking crisis.

Paul Romer’s New Project: Charter Cities

Sebastian Mallaby writes in The Atlantic about Paul Romer’s new project – the creation of charter cities in low-income countries.  You can read the article here.

Issues for the Budget Countdown

I have written an article on the debate about the upcoming budget for Business and Finance. It’s hidden behind a paywall, so I’ve attached the full text below the fold.

Continue reading “Issues for the Budget Countdown”

European Parliament Briefing Papers: June 2010

The latest Monetary Dialogue briefing papers for the European Parliament’s Committee on Economic and Monetary Affairs are available here (click on 21.6.10). These papers are provided to help the MEPs on the committee prepare for their June 21 meeting with President Trichet, which promises to be an interesting one. My paper is titled “The Euro, the ECB and the Sovereign Debt Crisis”.  All the papers focus on different aspects of the European sovereign debt issue.