A lot of economists at present reckon the new Bank of
England Governor, Mark Carney, is too pessimistic in his current expectation
that it will be almost three years before the UK unemployment rate falls to 7%
(a figure that has acquired totemic status in the emerging era of ‘forward
guidance’ when it comes to assessing likely moves on monetary policy). Emerging
optimism is based on recent evidence of stronger growth in both output and employment
which in recent months has pushed the headline unemployment rate down to 7.7% -
already considerably lower than most economists were originally forecasting for
the end of 2013. A majority therefore think the 7% unemployment benchmark rate
will soon appear on the horizon and be reached by the end of 2014.
This view seems based on the assumption that employment
will continue to grow at close to the pace achieved in the summer months, and
might even accelerate in the coming months if confidence about prospects for the
economy improve still further. Surveys of employers’ hiring intentions – such as
the latest Employment Outlook published today by the Recruitment and Employment
Confederation – underscore this bullish mood, reporting that as many as 50% of
employers intend to expand staff levels in the next quarter.
However, the Bank of England is likely to put at least
as much weight on the reports of its own Agents, who talk to organisations
around the country and produce a monthly report, the latest issue of which is
also published today. This paints a somewhat different account of the short-run
employment outlook.
According to the Bank’s Agents, while business
activity has improved there were indications of only a ‘slight increase’ in
staffing levels over the next six months. Overall, employment was reported to
be rising only modestly, and by less than output, so that productivity was
gradually improving (which is good news given the UK’s widening productivity
gap with other economies, as referred to in my earlier blog this morning).
Employment intentions were found to be weakest in consumer services (by far the
biggest sector of employment in the economy) where employers were set to
respond to increased demand by increasing employee hours rather than taking
more staff on. Employment intentions were strongest in construction, a further
sign of the degree to which the housing market is leading the emerging economic
recovery.
Just why one sees such divergence in indicators of
employment intentions is unclear. But if the Bank’s Agents’ report proves right
we are heading for a ‘jobs lite’ rather than ‘jobs rich’ recovery, at least in
the short-run. If so, at a time of continued strong growth in the supply of
labour to the UK economy, it might take considerably longer than a year before
we see the unemployment rate fall to 7%.