Wednesday, 15 February 2012

February 2012 Labour Market Statistics Briefing

On the 15th of February, the Office for National Statistics published the Labour Market Statistics for February 2012, which covers Labour Force Survey (LFS) data for the final three months of 2011 and Jobseekers’ Allowance claimant data for January 2012.  This data indicates a further increase in unemployment, both on the quarterly LFS measure and the more timely monthly claimant count measure.  However, for the second consecutive monthly data release, there has been a slight increase in the numbers employed. 

The broadsheets and the BBC have largely reported reactions from City analysts and Government representatives who have presented the slight increase in employment and the slower increase in unemployment in very positive terms.  Today’s Guardian quoted Alan Clarke, of Scotiabank, who said: "If there was any doubt that the UK economy had turned the corner and that the worst news was in the past, then today's labour report should lay those concerns to rest." The Independent and the BBC both interviewed the Government’s Minister for Welfare Reform, Lord Freud, who described the latest data as “encouraging”, telling the Independent that: “With more people in employment and a rise in vacancies, it is clear the private sector is still creating jobs.” 

However, in our view it is too early to support such optimistic interpretations, especially on the basis of monthly estimates – which are far less robust than LFS data published quarterly by the ONS.  We also fear that this optimism fundamentally underplays the fact that the labour market remains in a very fragile state.  It is important to remember that employment and unemployment rates are ‘lagging’ indicators, meaning that they tend to follow changes in other indicators (such as GDP growth rates or leading indicators like business confidence or manufacturing orders).  Therefore it is likely that future LMS releases, at least for the next few months, will continue to suggest weak labour market conditions until there are stronger signs of recovery.

We also believe that some of the details within the data remain quite concerning. These include the fact that the recent increase in employment was driven by more people working part-time (masking a fall in both full-time employment and self-employment) and that disparities between English regions could be widening (with the number of unemployed increasing by 26,000 in the North West, over half of the total increase in unemployed people across the UK).  This is described in more detail below.

Unemployment and Employment Rates
LFS data for the three months to December 2011 suggest that unemployment has again increased, by 0.1 percentage points on the previous quarter to a rate of 8.4% in the UK.[1]  This represents an increase of 48,000 in the number of unemployed people compared to the previous quarter (with a total of 2.7 million estimated to be unemployed between October and December 2011).  The ONS emphasise that, in the context of the rapid increases in unemployment reported in recent months, this is a relatively modest rise – and is the lowest increase since April-June 2011.  However, compared with the same period a year earlier (October-December 2010), the latest rate is clearly a very significant increase – with 179,000 more individuals unemployed.  We believe it is important to bear in mind this longer term trend in unemployment when considering some of the reactions in the media summarised above.

Although unemployment has continued to increase, the latest LFS estimate suggests that employment has increased slightly (which was also the case in the three months to November 2011 reported in last month’s LMS).  The employment rate increased by 0.1 percentage points to 70.3%, an increase of 60,000 on the quarter to reach 29.1million employed.  It is possible for employment and unemployment rates to increase at the same time if economic inactivity (the proportion of adults who are neither employed nor unemployed, such as full time carers, students, etc.) decreases. 

Last month we reported that employment rose because an increase in the number of self-employees outweighed a decrease in the number of full-time employees.  This month’s data is rather different, with the number of full-time employees and self-employees both decreasing – by 26,000 and 10,000 respectively on the previous quarter.  The net increase in total employment has been driven by an increase in the number of part-time employees (by 90,000 on the previous quarter).  Unfortunately that further builds on a picture of labour market weakness, fuelled by a low demand from employers, as the number of people who said they only worked part time because they couldn’t find a full-time job (i.e. working part-time but wanting to work full-time) increased by 83,000,to reach 1.35 million – which is the highest number since records began in 1992. 

If last month’s story was an increase in ‘necessity’ self-employment, this month’s story is surely an increase in ‘necessity’ part-time working. 

Job Seekers’ Allowance Claimants
The proportion of Job Seekers Allowance (JSA) claimants in the UK in January 2012 was 5.0% of adults aged 16 and over, which is unchanged from the previous month but 0.5 percentage points higher than the same period a year earlier.  This is equivalent to 1.6 million adults claiming JSA across the UK, up 6,900 from the previous month (December 2011) and up 146,300 on the same period a year earlier.  These increases are slightly higher than the increases reported last month (for December 2011 JSA claimants compared to November 2011).

Redundancies and Vacancies
In the three months to December 2011, 164,000 people had become redundant, up 17,000 from the previous quarter and up 17,000 from the same period a year earlier.

The number of vacancies (advertised through Jobcentre Plus) has increased slightly in the three months to January 2012 (after falling for two consecutive quarters) by 11,000 to reach 476,000.  However, this is still 21,000 lower than the same period a year earlier.   Given the relatively high level of unemployment, this now means that there are 5.8 ILO unemployed adults to every one vacancy, up from 5.6 in the previous quarter.

Key Regional Developments
·         Although the number in employment increased in the UK overall, numbers fell significantly in the North West and the East Midlands, by 15,000 and 32,000 respectively on the previous quarter. The East of England, South East and South West all experienced significant increases, by 25,000, 20,000 and 26,000.  This demonstrates a continued north-south divide in labour market conditions. 
·         Although the number in employment also increased in the North East (by 20,000), this region continues to have the lowest employment rate, at 66.2% - compared to 74.6% in the East of England.
·         Unemployment has increased in all regions except for the North East, Yorkshire and the Humber and the South West.  The largest increase was in the North West, where the numbers estimated to be unemployed increased by 26,000 (over half the total increase in unemployment across the UK).
·         In the East Midlands, unemployment increased by 1,000 (or 0.2 percentage points) to reach 8.2%, which remains below the UK average of 8.4%, whilst the employment rate remains above the national average (at 71.1% compared to 70.3%).
Source: ONS Crown Copyright, 'Labour Market Statistics: February 2012', 15th February 2012.

[1] According to the International Labour Organisation (ILO), this is defined as those who are out of work but available for, and actively looking for, employment within a set period.  This is expressed as the proportion of ‘economically active’ (employed plus unemployed) adults.