Since 1997 we have had the benefit of quarterly estimates of the volume of national output, broken down into the principal sectors of the economy and of national expenditure. Through these new data we can trace in greater detail the evolution of the Irish economy, including the relevant contributions to the growth of output made by increases in labour productivity and employment.
These new data help to explain what at first sight is a puzzling phenomenon: an acceleration of our GNP annual growth rate from 6 per cent in the year ended June 1999 to almost 10 per cent a year later, just before a tapering-off of the expansion of our workforce.
The acceleration of our rate of economic growth began in mid-1999 and continued until the middle of last year, whilst the slowing in the growth of our labour force started in the second quarter of last year, and continued to the end of the year.
Perhaps because we have not got used to the availability of new quarterly data on the evolution of our economy, this remarkable apparent disparity between the trend of national output and of workforce growth - the most important single input into production - has attracted no attention. It deserves closer study.
Between 1997 and mid-1999 our economic growth had in fact slowed, falling from an annual rate of 9.3 per cent to a much lower 6 per cent. Although the growth of exports accelerated during 1998, that factor was more than offset by a slowing of investment growth from the second quarter onwards, and of consumption in the latter part of the year and during the first half of 1999.
But in the last quarter of 1999 the growth of consumption began to rise again, and in the first half of last year export growth also accelerated.
As a result of this increase in demand, by the middle of last year the annual rate of growth of GNP had recovered to almost 10 per cent.
Up to February last year this renewed growth was being sustained by an extraordinary increase in employment, which was rising at an annual rate of 6.5 per cent throughout that period in a kind of final upsurge before the long-foreseen tapering off of our employment boom, which finally began in the second quarter of the year.
It is hard to know what caused employment to rise so rapidly during that yearlong period to February 2000.
Is it possible that the knowledge that the availability of labour was soon going to diminish may have caused employers to "stock up" on labour before the blow?
Certainly labour productivity rose more slowly than usual during the middle part of 1999, which would be consistent with such a hypothesis, as is the fact that, thereafter, as demand rose, labour productivity increased exceptionally rapidly. By the second quarter of last year labour productivity was providing over half the increase in output, with extra workers supplying less than half, something we have not seen for many years.
By that time the rapid growth of the workforce had begun to taper off, and by the last quarter of last year the number at work was rising at a rate of only 3.8 per cent. That was two-fifths lower than the 6.7 per cent increase in the year up to February 2000.
It does look as if our economy has finally run into the buffers so far as labour supply is concerned, and has done so even more suddenly than thought likely.
Because the quarterly data on output do not appear until about five months after the employment figures, we do not yet know what impact this may have had on the growth of output in the second half of last year.
But it seems inconceivable that labour productivity in this period could have exceeded the extraordinary figure of 6.7 per cent achieved in the second quarter of last year.
THUS it seems clear that the GNP growth rate of 9.7 per cent cannot have been sustained in the latter part of last year. And, while the overall GNP growth for 2000 may match the previous year's, any such annual figure will almost certainly hide a downturn in economic growth from mid-year onwards, evidence of which is likely to emerge this year.
Closer examination of the data for the main sectors of the economy reveals that up to the end of last year employment was still growing strongly in the industrial sector (which includes construction), but in the retail area the increase had virtually halved after February, and was also lower in other sectors in the second half of the year.
The higher level of output in the first half of last year owed a good deal to a recovery in exports, the growth of which had dipped in the second half of 1999. But increased domestic consumption also played a part in the recovery of output.
Between autumn 1999 and last summer the annual growth rate of private consumption had accelerated from less than 7 per cent to 9.5 per cent. However, the retail sales index suggests that in the second half of 2000 this growth may have eased, which could have reflected slower growth of employment.
While it is too soon to come to a definitive judgment, there does seem to be some reason to believe that since the middle of last year the long-expected slowdown in unemployment growth may have started to constrain output.
Attempts to reverse this easing of economic growth, for example through an expansionist Budget, are fundamentally misplaced.
Given the emergence of this employment constraint we need to slow our growth rate to a sustainable level of 5 per cent or 6 per cent, which would still be twice, rather than the recent three to four times, the growth rate of our EU partners.
gfitzgerald@irish-times.ie