Wednesday, 21 February 2018

UK labour market gets even more puzzling

Judging by the latest official figures for the final quarter of 2017, published this morning by the Office for National Statistics, you clearly can’t have it all in the UK labour market at the moment. And the economic puzzles get even more perplexing. 

Pay growth, the source of most of the bad news in recent months, picked up from 2.3% to 2.5% at the end of 2017 when measured by growth in average weekly earnings excluding bonuses. The corresponding real pay squeeze in turn eased, from a cut of 0.5% to 0.3%. But while this might suggest either a tightening in market conditions or an improvement in labour productivity, the opposite has happened. 

The rate of job growth slowed in the final quarter of last year (the economy added only 88,000 net new jobs), unemployment increased by 46,000, the total number of hours worked fell by 0.3%, while growth in output per hour worked (i.e. labour productivity) dipped from 0.9% to 0.8%. 

In other words, a labour market that struggled to boost pay when getting tighter, just saw pay strengthen when conditions got a bit weaker. This pattern is difficult to explain, though may become clearer as more data become available. However, it clearly adds to the conundrums facing economists, not least those at the Bank of England when they next consider if and when to raise interest rates.      

Wednesday, 24 January 2018

Latest ONS Jobs Report offers a very mixed yet familiar picture of the UK labour market

The UK Office for National Statistics this morning published its latest release of data on the state of the labour market (which British commentators, influenced by the US BLS monthly equivalent, increasingly refer to as the official UK 'Jobs Report'). These latest (mainly rolling quarterly) data  relate mostly to the three months to November 2017.

The picture painted by the release is very mixed.

After a period of contraction in the overall size of the UK workforce, the number of people participating in the labour market expanded by 99,000 to 33.64 million in the latest quarter, mostly due to a fall of 79,000 in the number previously economically inactive. 

Employers who have recently been struggling to hire staff took full advantage of this, enabling employment to rise by 102,000 to 32.21 million, lifting the employment rate back to a joint record high of 75.3%. But with job creation only slightly higher than growth in the labour supply, unemployment is little changed (down just 3,000, at a rate of 4.3%). As a result, the degree of tightness in the labour market is also unchanged, although with the balance of job creation in the latest quarter tilted strongly toward full-time jobs for employees (up 173,000) and away from self-employment (down 82,000) the rate of growth of average weekly earnings excluding bonuses has ticked-up to 2.4%. Unfortunately, however, higher price inflation at the end of 2017 more than wiped out this improvement, intensifying the squeeze on real wages which fell by 0.5%. 

The resulting pattern is thus very familiar – record jobs and a low rate of unemployment but still less spending power for the average worker.

Wednesday, 13 December 2017

Falling UK employment - a labour supply story

The latest official UK jobs figures (for August to October 2017) show a quarterly fall of 56,000 in the number of people in work (lowering the employment rate from 75.3% to 75.1%), a small fall in the number unemployed - leaving the unemployment rate steady at 4.3% - and a very slight pick-up in nominal pay growth (i.e. average weekly earnings excluding bonuses) to 2.3%, with real pay once again fallen by 0.4% once adjusting for consumer price inflation.

However, although the figures suggest the jobs boom of recent years has come to end this is due to emerging weakness in the supply of employable people to the labour market rather than a fall in demand from employers. 

Redundancies are still on the decline (down 11,000 on the quarter) and unfilled vacancies have risen to yet another record high of 798,000; but the rapid growth in labour supply of recent years has seemingly gone into the reverse. The total labour supply as measured by the economically active population aged 16 and over fell by 82,000 in the quarter. The main reasons for this are a sudden surge in economically inactive student numbers (up 35,000, 1.5% on the quarter ) and a fall in the number of citizens of the central and eastern European countries (the A8) that joined the EU in 2004 (the number of people born in these countries fell by 35,000, -3.2%, in the year to the third quarter). 

In principle, this drop in available labour should be good news for unemployed jobseekers. The steady unemployment rate may therefore indicate a lack of employability on the part of the remaining pool of unemployed. Assuming no overall weakening of demand for workers, or renewed growth in supply, the labour market is thus likely to show greater signs of tightening in the coming months which, fingers crossed, should mean somewhat better news on the pay front.

Wednesday, 15 November 2017

Much better news on UK labour productivity offers hope for better pay prospects in 2018

The latest official jobs and productivity figures, published earlier this morning by the Office for National Statistics, suggest that UK employers are finally having to respond to much tighter labour market conditions as the economy edges closer to full employment. 

Although the economy continued to grow, there was no net hiring in the third quarter of the year (total employment fell marginally, by 14,000), with businesses cutting full-time jobs and switching to increased use of part-time workers. The combination of an overall fall in total hours worked (down 0.5%) and continued growth in output saw a very welcome quarterly surge in output per hour of 0.9% - the fastest rate of growth in labour productivity for six years. For the time being there is still no sign of a corresponding improvement in pay, with growth in average weekly earnings steady at 2.2% and real earnings still falling against a backdrop of high consumer price inflation. However, the likelihood of sustained improvement in productivity as employers continue to adjust to tighter labour market conditions offers hope of better pay prospects in the coming years albeit we are unlikely to enjoy job growth at the rapid pace seen since 2012.

Wednesday, 18 October 2017

Women drive latest rise in UK employment as pay growth disappoints yet again

The UK jobs boom continues according to the latest Office for National Statistics figures - mostly covering the three months to August 2017 - published earlier this morning  

Job growth in the latest quarter is driven mostly by women who account for more than 8 in 10 of the total net increase in employment of 94,000 (taking the overall employment rate to 75.1%) . Almost all these additional women in work are in part-time jobs, split fairly evenly between part-time female employees (up 42,000) and part-time female self-employed (up 45,000). Men by contrast have seen a rise of 29,000 in the number working full-time offset by a fall of 13,000 working part-time. However, although this overall degree and make-up of employment growth is good for the unemployment figures – with the unemployment rate again at a 42-year low of 4.3% – it is failing to exert leverage on growth in average weekly earnings (excluding bonuses) in either cash terms (running at an annual growth rate of 2.1%) or real terms (down 0.4% on the year). While the headline jobless and price inflation rates imply the economy needs a small interest rate rise, the pay growth figures say ‘not quite yet’.

Wednesday, 13 September 2017

Mirror image of recent job gains and losses could signal future pattern for UK labour market

The UK Office for National Statistics has just published its monthly labour market report, mostly covering the three months to July 2017

The latest figures once again show a healthy rise in employment (up 181,000 in the most recent quarter, to a rate of 75.3%), a further fall of 75,000 in the number of people unemployed (down to a rate of 4.3%) and 107,000 fewer economically inactive (down to 21.2%), yet still no sign of any sustained upward momentum in the cash value of average weekly earnings resulting in a 0.4% fall in real wages. This remains a jobs boom without a feel-good factor.

Although the real wage squeeze caused by the inflationary impact of the fall in the value of the pound is the most obvious symptom of Brexit uncertainty on the labour market, there are signs of a Brexit effect in the recent pattern of job gains and losses. The more competitive exchange rate has given a boost to manufacturing jobs, up 34,000 in the second quarter, but there are signs of weakness in the real estate sector where the number of jobs fell by 34,000. The consequences of the real wage squeeze for consumer spending may also be putting pressure on the arts, entertainment and recreation sector, which shed 30,000 jobs in the quarter. This kind of mirror image effect could be an early pointer to a post-Brexit future of winners and losers in the UK job market.   

Wednesday, 16 August 2017

Latest official UK Jobs Report tells a good news-bad news story on EU migration and Brexit

For regular readers of the UK Office for National Statistics (ONS) monthly release of official labour market statistics, the latest 'Jobs Report' published earlier this morning will have a distinctly familiar feel. 

Another record number and proportion of people in work (up 125,000 in the latest quarter to 32.07 million or 75.1%), the unemployment rate down to a 42 year low of 4.4%, combined with anemic average regular weekly nominal wage growth at 2.1% and falling real wages, down 0.5%. The unemployment rate continues to scream tight labour market and near full employment, but pay points to continued slack and poor productivity growth (output per hour worked having fallen by a further 0.1% according to the ONS’ latest flash estimate). The UK jobs market is thus performing very well but still far from ‘strong’ in a meaningful sense of the word.

In terms of detail, the continued rise in the employment rate of EU nationals working in the UK to 80.8% over the past year is a good news-bad news story. On the one hand, although the inflow of EU migrants has slowed considerably compared with recent years, it indicates that the Brexit vote has not overall deterred migrants from entering the UK to fill job vacancies. But on the other hand it further highlights the dependence of many UK employers on the free movement of EU labour and thus the possible negative consequences of a hard Brexit deal.

Finally, while the annual fall of 20,000 to 883,000 in the number of people on a zero-hours contract in their main jobs leaves the proportion of zero-hours contract workers in total employment unchanged at 2.8%, it now looks as though the proportion peaked last year at 2.9%. It is unclear, however, if this reflects a change in the underlying economic conditions faced by employers or a response to popular pressure on firms to offer staff greater security over hours and incomes.