My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.
Thanks to Mark Carneyís forward guidance, the unemployment rate is the economic indicator of choice. We will see the great debate - when will the unemployment rate get down to 7% and how soon after that will the Bank of England raise interest rates? - twist and turn in coming months.
This month the pendulum has swung to those in financial markets who think 7% will be achieved well before the 2016 date implied by the Bankís forecasts. In the past year the unemployment rate has dropped from 8.1% to 7.7%, suggesting 2015, or even before, is more likely.
But there will, as I say, be twists and turns. The more employers extract higher productivity from workers, the slower will be the growth in net new jobs (a strong 276,000 over the past year) and the more gradual the fall in unemployment.
The Bank would also stress that a 7% unemployment rate wlll not be the trigger for higher interest rates, but merely the point at which the monetary policy committee considers them. More on that in coming months.
This week I want to tackle a couple of puzzles. Why, when the job market has been so strong, is pay so weak? And why are people spending again when wages and salaries are apparently falling inexorably in real terms.
This is, of course, Labourís new line of attack on government policy; that the recovery is not worth the name as long as living standards are falling. And the latest figures showed that the fall, which dates back to the onset of the crisis, persists.
Average earnings - total pay - rose only 1.1% in the 12 months to May-July. Regular pay, excluding bonuses, rose only 1%. There will be a new inflation number out on Tuesday but the last one was 2.8%. Prices are easily outstripping pay.
The weakness of pay has some puzzling aspects, Surveys of private-sector pay settlements show they average 2% to 3%. Public sector pay, it is true, has moved more into line with the governmentís 1% limit; earnings in the latest 12 months were up by 0.9% (excluding the publicly-owned banks).
The earnings figures imply, however, that as well as the public sector, pay must be very weak in the hundreds and thousands of smaller firms not covered by formal agreements.
Assume the earnings figures are right. Why, apart from public sector pay policy, are they so low? The stock answer is that unemployment, and fear of it, is keeping a lid on pay. It seems the Phillips curve, a negative relationship between unemployment and wage rises, lives.
Bill Wells, an economist with Vince Cableís Business, Innovation and Skills department (BIS) takes a different view. Wells, who digs deep into the labour market numbers, and has given a number of recent presentations, argues that wages have become less responsive to short-term economic signals, including unemployment and inflation.
The recent story of wages, according to him, is that they had settled into a 3% to 5% range before the crisis but were shocked down to between 1% and 3% by the crisis.
Most employers still award annual pay rises but few believe they need to award more than inflation, let alone make up for the drop in real wages of recent years. Until pay is shocked out of its range - and it is not clear what will bring this about - this may be the new normal for pay.
Real wages are not, however, the whole story. The broadest measure of money flowing into households, real household disposable income, has only fallen in one year, 2011. It rose by 1.4% last year. It held up during the 2008-9 crisis, and has fared better than, say, during the 1970s, when it fell for three years in four in the 1974-77 period. Households have sources of income other than pay.
Wells also draws the distinction between real wages, down by a around 7% since mid-2007, and real take-home pay, which has benefited from tax changes, most notably the coalitionís big increase in the personal tax allowance, which will reach £10,000 in April. Low pay is also being topped up by tax credits.
Though the drop in take-home pay is smaller than the fall in real wages - around 3% and it would not have occurred at all if the Bank had met its 2% inflation target - it is still a fall. Yet consumer spending has risen for six consecutive quarters and some areas are booming; such as 18 months of strongly growing private new car registrations.
Credit may be playing a part, though consumer credit remains weak. Some households may be responding to low interest rates and forward guidance by spending out of savings. I suspect, however, the next estimate of gross domestic product later this month will show a rise in the saving ratio.
Consumers are spending for a complex array of reasons. One, which I have noted before, is that households with large borrowings have only belatedly started spending the ongoing windfall they are getting from very low interest rates. Borrowers tend to be bigger consumers than the savers who are suffering from low rates. Other windfalls, such as payment protection misselling compensation, may have helped.
It may be, however, we have to get away from the idea that workers can expect pay rises that outstrip inflation, year-in, year-out. Wells points out that Britain is unusual in that workers came, over decades, to expect annual real wage hikes.
The result, and this is a statistic that will surprise many, is that on OECD (Organisation for Economic Co-operation and Development) figures, Britainís average take-home pay last year the third highest among advanced economies.
Only Switzerland and South Korea ranked higher, while Britain outstripped America, Germany, Sweden, Japan, France and 26 other countries. The comparison with America is particularly striking. Since the mid-1960s Britainís real earnings index has doubled while Americaís has not risen at all. Maybe Britain will now become more like other countries.
The good news from all this is that the squeeze on real incomes has not been as intense as it appears, hence the fact that spending is rising modestly. The bad news is that the squeeze may not go away even as the recovery gathers strength. Whether that means the recovery lacks legs remains to be seen. At the very least, it cannot rely too heavily on the consumer.