Wednesday, 20 January 2016

UK unemployment falls to decade low rate of 5.1% but rate of annual regular pay growth falls below 2% - we need to rethink what we mean by ‘tight labour market’

We’ve just had the latest official UK jobs market figures from the Office for National Statistics. This is the first set of 2016, though the data mostly cover the three months September to November of last year. And the picture is broadly in line with the recent trend.

Employment continues to very grow strongly, with 267,000 (+0.9%) more people in work compared with the previous quarter. Employees account for 60% of the latest quarterly increase, full-time employees for 42%. The overall rise takes the total number of people in work to 31.39 million, lifting the working age employment rate to 74%, higher than at any time since comparable records began in 1971. Unemployment meanwhile is down 99,000 on the previous quarter, to 1.675 million, alongside a fall of 93,000 (to 8.92 million) in the number of economically inactive people of working age.

The unemployment rate (5.1%) is now lower than at any time for a decade but still not triggering higher wage pressure. Indeed the rate of annual nominal pay growth has slowed again (down to 1.9% excluding bonuses, which is the best measure of underlying pay pressure). This suggests that the rate of unemployment consistent with the Bank of England’s 2% inflation target has fallen significantly over time; a generation ago most economists reckoned this so-called sustainable unemployment rate was around 10%. Consequently we need to rethink what we mean by a ‘tight labour market’.

Some commentators continue to talk as if the labour market is already very tight, citing indicators such as unfilled job vacancies (currently standing at around 750,000) and employers’ reports of mounting skills shortages. The implication is that the Bank of England ought to be considering raising interest rates sooner rather than later, notwithstanding caution induced by the state of the global economy as highlighted only yesterday by the Bank’s at present dovish Governor Mark Carney. But the pay data simply don’t support a hawkish view. Unemployment may now have to fall to a very low rate, perhaps below 4%, before we see strong upward pressure on pay. For the time being the labour market isn’t tight, just recovering. Monetary policy should support this not stymie it.

Wednesday, 16 December 2015

It’s ‘payja vu’ in the UK labour market

This is one of those days when the eyes of most economic commentators will be fixed on what the United States Federal Reserve decides to do to the interest rate rather than the latest UK job market figures. The Office for National Statistics (ONS) data, mostly covering the three months August to October 2015, nonetheless provide another twist in the tale of the labour market trend on this side of the Atlantic.

After a brief hiatus in the spring, the UK jobs boom is clearly back in full swing with (according to the household Labour Force Survey) 207,000 (+0.7%) more people in work compared with the previous quarter and 505,000 (+1.6%) more than a year earlier. On an annual basis employment of employees increased in percentage terms by 1.9%, somewhat more than self-employment 1.6%. Within these totals, in percentage terms part-time employment (+2%) increased by more than full-time employment (1.5%). At the sector level, construction recorded by far the largest annual increase in jobs (+111,000 or 5.3%) in a big employment sector.

The ONS’s alternative quarterly Workforce Jobs series, mostly based on a survey of employers, offers a slightly different but broadly consistent picture of job growth of 1.2% in the year to September 2015. The ONS also finds that in the year to September private sector employment increased by 2.2% while public sector employment fell by 1.1%.  

The rise in LFS employment takes the total number in work to 31.30 million and the working age employment rate to 73.9%. Both the latter are new records but less noteworthy this month than two other landmark figures. First, total hours worked each week in the economy have topped 1 billion for the first time ever. Second, unemployment has at last returned to the pre-recession rate of 5.2%. Yet after a period of much better news on pay, the rate of average regular weekly wage growth (i.e. excluding bonuses) for employees has fallen sharply to just 2% in the year to October, down from 2.4% in the year to September. The slowdown is particularly marked in the private sector (down from 2.8% to 2.3%), the rate in the public sector actually rising slightly (up from 1.2% to 1.3%). The ONS notes that the drop in the overall figure reflects a high single month growth rate for July of 2.9% falling out of the latest three month average and being replaced by a much lower single month growth rate of 1.7% for October.  

There is thus a palpable sense of what a punster might call ‘payja vu’ in the UK labour market at present, a reminder of the initial phase of the economic recovery characterized by a jobs boom alongside weak productivity and pay growth. What’s most surprising it that for all the talk of mounting skills shortages employers in most sectors (with the exception of construction where very strong job growth has pushed wage growth well above 6%) appear perfectly capable of hiring at will without having to hike pay rates. This will please jobseekers and Bank of England interest rate setters even though it means employees are now enjoying real wage gains only because almost zero consumer price inflation is nowhere near the Monetary Policy Committee’s target rate of 2%.

Wednesday, 11 November 2015

UK jobs market sending out mixed signals but no need yet to ring ‘overheating’ alarm bells

You can come up with almost any narrative you want from the latest UK job market figures released earlier this morning by the Office for National Statistics (ONS), mostly covering the three months July to September 2015.

The good news story is a very healthy quarterly rise of 177,000 (to 31.21 million) in the number of people in work, taking the employment rate to yet another new record high of 73.7%, and a big drop of 103,000 (to 1.75 million) in the number unemployed, lowering the unemployment rate to 5.3%, only slightly higher than before the recession.

And yet there is also more than enough disappointing news for the pessimist to latch onto. Most of the rise (82%) in total employment in the latest quarter is in part-time jobs with the result that total hours worked in the economy have fallen (by 0.1%). Meanwhile the number of unfilled job vacancies is, as the ONS says, ‘little changed’, albeit still at a very decent level of around 740,000. This combo of falling hours and stable vacancies may help explain why the rate of average weekly regular pay growth (i.e. excluding bonuses, the best regularly available official measure of underlying nominal wage inflation) has fallen to 2.5% in the year to September (down from the 2.8% figure recorded for the year to August). This is still very good when set against zero consumer price inflation but suggestive of an overall easing in the strength of demand for labour.

Some amount of demand easing might also account for a slight rise of 3,300 between September and October in the number of people claiming unemployment related welfare benefits. However, as former senior member of the Government Economic Service and labour market expert Bill Wells has noted this morning, the headline claimant count total might be being affected by administrative delays associated with the introduction of the new out of work Universal Credit system (the number of unemployed people claiming the long standing Job Seeker’s Allowance benefit fell by 11,200 between September and October).

What therefore does an overall reading of these data tell us? My view is that while we can continue to take comfort in the general good health of the UK employment situation these latest data do not provide evidence to suggest the labour market is overheating. Neither do they lend weight to the view that the Bank of England should start to raise interest rates sooner rather than later. For the time being at least the alarm bells can remain silent.  

Wednesday, 14 October 2015

UK’s topsy turvey jobs market trend confounds narrative of mounting recruitment difficulties

The Office for National Statistics (ONS) has this morning released the latest set of UK labour market data, mostly covering the three months June to August 2015.

It’s proving to be a topsy turvey year for the UK jobs market. The first six months were characterized by relatively slow employment growth, a fairly stable unemployment rate but much better pay figures, overall suggesting an improvement in labour productivity. However, between June and August the number of people in work leapt by 140,000 to 31.12 million, reaching a record working age employment rate of 73.6%, the unemployment rate fell from 5.6% to 5.4%, close to the pre-recession low, while the pace of regular (i.e. underlying) pay growth eased back from 2.9% to 2.8%.

The explanation for this apparent flip in behaviour is unclear, though it’s possible that recruiters were cautious in the first half of the year because of political uncertainty surrounding the General Election in May. What is clear is that hiring picked up strongly from June onward with the number of employees rising by 120,000 in the three months to August, full-timers accounting for more than half (70,000) this increase. Interestingly, this outcome contrasts with the popular narrative of recent months which explains the labour market trend at the start of the year in terms of mounting recruitment difficulties and increased competition for talent. Whatever the validity of this argument, employers don’t seem to have had too much difficulty hiring staff between June and August, and didn’t have to put more into regular pay packets to do so.

Wednesday, 16 September 2015

Fresh jobs and pay figures point to better news on UK labour productivity

The Office for National Statistics (ONS) has this morning released the latest set of UK labour market data, mostly covering the three months May to July 2015.

It’s now fairly clear that the UK labour market recovery changed tack in the first half of the year. The previous and prolonged ‘jobs-rich/pay-poor’ trend appears, at least for now, to have gone into reverse. The headline unemployment rate is static at 5.5% when compared with the late winter/early spring quarter while the rate of average regular weekly pay growth for employees has risen further to 2.9%.

The number of people in work increased by 42,000 in the quarter (up 0.1% to 31.095 million), much slower than the quarterly growth rates seen for most of the period since 2012, albeit enough to lift the employment rate from 73.4% to 73.5%. But with the working age economic inactivity rate also dropping slightly (down from 22.2% to 22.1%) this modest improvement in employment was unable to lower the headline unemployment rate (the level of unemployment indeed rising by 10,000 to 1.823 million).

These latter figures are of course drawn from the household Labour Force Survey (LFS). The ONS’ alternative, largely employer survey based Workforce Jobs (WJ) data series (published each calendar quarter) complicates the picture somewhat by indicating a much stronger rate of net job creation in the second quarter (to June). The total number of Workforce Jobs is found to have increased by 102,000 in the quarter (up 0.3%), almost 90% of the increase accounted for by jobs for employees.

Historically, movements in the LFS and WJ series do diverge at times, which is not surprising since they are obtained from different constituent respondents and cover slightly different time periods. Generally, however, these series tend to offer a consistent view of the underlying employment trend when viewed over a number of quarters and years. On the face of things the latest divergence might be explained by a combination of a relatively large quarterly increase in part-time jobs but with some of these being taken by people who already have another job, either as an employee or self-employed. But while close examination of the latest LFS data do indeed show a relatively strong quarterly rise in part-time working (up 0.6%, the number of people working full-time unchanged in percentage terms) the number of people with second jobs actually fell quite sharply (by 0.2%).

Putting aside such statistical puzzles and looking solely at the picture painted by the LFS and average earnings data, the good news is that the latest employment/unemployment/pay combo provides further evidence that the much needed improvement in labour productivity may at last be underway. This will be welcomed by employers, wage earners and economic pundits, not to mention interest rate setters at the Bank of England. But the news is not so good for jobseekers because it now looks as though it will take a little longer than previously expected for unemployment to fall back to the pre-recession rate (of around 5.2%).

Public sector workers will also be feeling less than chipper. Their average weekly pay is rising at a rate of 1.3%, almost three times slower than the average rate of pay growth in the private sector, while the first half of the year saw an underlying fall (adjusting for statistical reclassification effects) of 22,000 in the number of people employed in the public sector. 

Wednesday, 12 August 2015

Further signs of hiatus in UK jobs recovery

The Office for National Statistics (ONS) has this morning released the latest set of UK labour market data, mostly covering the three months April to June 2015.

Although these quarterly data refer to the spring and early summer they convey a picture befitting August and the summer holiday season, since nothing much appears to have happened.

Admittedly, the number of people in work fell by 63,000 in the quarter to 31.03 million, while the number unemployed increased by 25,000 to 1.85 million. But as the ONS notes the employment rate (73.4%), the unemployment rate (5.6%) and the economic inactivity rate (22.1%) were all ‘little changed’.

Nonetheless, this is the second consecutive month of weak employment data, which suggests the UK jobs recovery ran out of steam in the spring. What’s less certain is whether this represents a temporary pause, perhaps due to employers’ caution over hiring around the time of the General Election in May, or a clear break in the previous trend of sharply falling unemployment. Either way it now looks as though it will take a little longer than previously expected for unemployment to fall back to the pre-recession rate (5.2%).

The most disappointing feature of the latest data is that the apparent hiatus in the jobs recovery is not offset by faster pay growth - the rate of growth of regular pay, excluding bonuses, for employees remaining unchanged at 2.8% - which might have indicated a pick-up in labour productivity. A combination of jobs standstill and lack of momentum in pay therefore makes this the least positive set of UK labour market figures for some considerable time.

Wednesday, 15 July 2015

Faster pace of average real weekly pay growth plus slight fall in employment and slight rise in jobless rate - might the UK economy be embarking on a productivity revival?

The Office for National Statistics (ONS) has this morning released the latest set of UK labour market data, mostly covering the three months March to May 2015.

The strong jobs recovery looks to have taken a pause in the spring. Although the number of people in work fell by 67,000 in the quarter to 30.98 million and the number unemployed increased by 15,000 to 1.85 million these changes are tiny relative to the magnitudes involved. Better therefore to think of the employment rate (73.3%), the unemployment rate (5.6%) and the economic inactivity rate (22.2%) as, to use the ONS’ phrase, little changed.

Indeed the quarterly fall in employment is almost entirely due to fewer people in self-employment (down 55,000), the number of employees in fact increasing by 5,000. The level of vacancies remains high at 726,000 (albeit down 17,000 on the quarter). Moreover, youth unemployment fell by 13,000 and there was also a small monthly fall (in June) of 2,500 in the number of people claiming Jobseeker’s Allowance. No need therefore to panic.

However, if the jobs recovery has paused the opposite is true for the pay side of the labour market. Total pay for employees is rising at an annual rate of 3.2%, higher than at any time since spring 2010, and regular pay (excluding bonuses) by 2.8%, the highest rate since winter 2009. With the CPI inflation rate close to zero between March and May this year these represent real pay increases, mimicking what one would see if the economy were still enjoying the pre-recession trend rate of productivity growth prior to the productivity slump.    

While it’s far too soon to conclude that these figures overall indicate a change in the recent UK labour market trend, a faster pace of wage growth plus slightly weaker jobs and unemployment performance might suggest an economy that for several years has preferred more jobs to higher pay is at last embarking on a productivity revival.

On the positive side, the slightly weaker jobs and unemployment figures may ease pressure on the Bank of England to raise interest rates for the time being despite mounting concern over the possible inflationary effect of stronger real wage growth. On the negative side, a slowdown in the pace of the jobs recovery is bad news for jobseekers for whom the availability of work is more important than what’s happening to pay.