Manufacturing the recovery, by Alastair Hatchett

23 Apr 10
There were further signs of economic recovery in the private sector average earnings figures released by the Office for National Statistics on April 21

There were further signs of economic recovery in the private sector average earnings figures released by the Office for National Statistics on April 21. The strongest earnings growth came in manufacturing, where the rate of growth was 4.4% in February 2010. The trend growth rate in manufacturing would suggest that it will move up towards 5% in the figures to be released next month.

The sector saw earnings drop back to zero in the first months of 2009 as shift and overtime working were cut back, and many factories went on short-time working. Earnings growth has returned and has been steadily increasing over the past six months. While the year-on-year three month average increase in February was 4.4% the year-on-year single month February rate was 5.8%.

Elsewhere, average earnings growth in distribution, retail, hotels and restaurants was 2.1% and in construction it was 1.7 per cent. Taken together with manufacturing these sectors represent 36 per cent of the workforce.

Average earnings growth in finance and business services was 3% having been -0.7% in January. This large sector covers 21% of the workforce. Some large City bonuses were paid in February, which boosted the rate of pay. Some of these bonuses would normally have been paid in January but had been shifted to February this year. Earnings growth in finance and business services, excluding bonuses, was 1.3%. Earnings in March are expected to be boosted in the finance sector by this year’s bonuses and potentially by early payment of bonuses that might otherwise have been caught by the new higher tax rate applicable from April 6. Watch out for next month’s figures on  May 12.

Meanwhile what was the difference in earnings growth between the private sector and the public sector? The rate of growth in the private sector was 1.8% (up from -0.1% in January) while in the public sector excluding the nationalised banks it was 2.5 per cent (down from 2.6% in January). On current trends, earnings in the private sector will continue to recover just as earnings become more subdued in the public sector.

Overall, the whole economy rate of growth was 2.3%. This is entirely consistent with IDS data on pay settlements which show a median increase of around 2%. Stronger economic recovery through 2010 will lead to higher earnings growth in the private sector as shift working and  bonuses increase and more hours are worked.

Alastair Hatchett is head of pay and HR services at Incomes Data Services

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