Thursday, 16 August 2012

August 2012 Labour Market Statistics Briefing

The Office for National Statistics published the monthly Labour Market Statistics First Release this morning, which reports on Labour Force Survey data for the period April to June 2012 and Jobseekers’ Allowance (JSA) data for July. As in the last three months’ releases, unemployment has fallen on the Labour Force Survey measure. However, this month, the more timely JSA claimant count measure has also fallen slightly – suggesting a level of stability in the UK labour market over the spring/summer.

Unfortunately, this stability is likely to be relatively short-lived. The ONS estimate that UK employment levels are now only 96,000 below the pre-recession peak (in the period March-May 2008) but output is continuing to contract (by 0.7% in the second quarter of 2012). Unemployment remains high, at 2.6 million on the Labour Force Survey measure and weak earnings growth (total pay increased by only 1.6% on the previous year) illustrates the on-going squeeze on household incomes for those who are in employment. For example, the ONS published data yesterday showing that inflation rose in July to 2.6% on the Consumer Price Index, from 2.4% in June. This surprised many commentators, including the Governor of the Bank of England, who had predicted steady falls in inflation through the rest of 2012. This increase was driven by sharp rises in the cost of air travel in the run-up to the Olympics and higher food prices, due to poor harvests (especially in the US), and with rising oil and petrol prices threatening future inflation increases.

But it is the picture of UK productivity performance that raises questions about future labour market performance. Compared to previous recessions, unemployment has not increased as significantly, whilst output (in GDP) has fallen to a lower level, and for a longer period, than at any time since the 1930s. This is because, despite steep falls in production, UK employers have tended to ‘hoard’ labour – in anticipation of recovery and in order to retain technical and specialist skills. According to a the quarterly Labour Market Outlook Survey published earlier this week by the Chartered Institute of Personnel and Development (CIPD ), almost a third of the private sector firms who responded (31% of just over 1,000 employers) have maintained staff levels higher than is required for the level of output they produced during the past year. Furthermore, 62% of firms felt that they would be forced to cut back on labour if output or service delivery does not pick up in the next year. Today’s release from the ONS includes estimates of labour productivity, which illustrates the impact of this retention of spare capacity. In the first quarter of 2012, output per hour worked was estimated to be 1.3% down on the previous quarter – contributing to an increase of 1.4% in unit labour costs. Any sustained recovery in demand could be some time coming as gloomy economic news continues to emerge, including the estimate published yesterday that output in the Eurozone contracted by 0.2% in the second quarter of 2012, alongside emerging weakness in Asia and an uncertain recovery in North America. Continued declines in UK output means that labour retention may be increasingly unsustainable and future falls in employment should not be unexpected.

Unemployment and Employment Rates
LFS data for the three months to June 2012 indicate that the unemployment rate
has fallen by 0.2 percentage points on the previous quarter, to 8% of the economically active population, which is equivalent to 2.56 million individuals. This is 46,000 lower than the previous quarter. However, this is up 0.1 percentage points (or 51,000 individuals) compared to the same period a year earlier. Long-term unemployment continues to increase, with the number of people out of work for more than a year up to 882,000 (an increase of 1,000 compared to the previous quarter). The number of young people (16-24 year olds) remains above 1 million, although it has fallen 4,000 on the previous quarter.

The employment rate (for adults aged 16-64) increased by 0.4 percentage points on the previous quarter, to 71%. The total number of people estimated to be in employment is now 29.5 million, up 201,000 on the previous quarter. This is 96,000 lower than the pre-recession peak of 29.6 million (March-May 2008). Both full-time and part-time employment increased, by 130,000 and 71,000 respectively.

Earnings Estimates
Earnings estimates continue to point to very weak growth in average pay levels, with regular pay (excluding bonuses), rising by only 1.8% between the three months to June 2012 and the same period a year earlier. Total pay (including bonuses) increased by 1.6% - broadly unchanged on the earnings growth estimates published estimated for last quarter.

Job Seekers’ Allowance Claimants
Jobseekers’ Allowance (JSA) claimants in July 2012 fell by 5,900 on the previous month, to reach 1.6 million. However, compared to the same month a year earlier, claimant count unemployment has increased by 35,600. The claimant count rate was 4.9%, unchanged from previous months but up 0.1 percentage points on the same period a year earlier.

Redundancies and Vacancies
In the three months to June 2012, 150,000 people had become redundant, down 21,000 from the previous quarter and down 4,000 from the same period a year earlier.

The number of vacancies (advertised through Jobcentre Plus) in the three months to July 2012 was 472,000 up 10,000 compared to the previous quarter and up 16,000 on the same period a year earlier. The number of ILO unemployed adults to every one vacancy has fallen to 5.4, compared to 5.7 in the previous quarter.

Key Regional Developments

Despite falling in the UK overall, unemployment increased in Yorkshire and the Humber, the East Midlands and the West Midlands, by 0.8, 0.5, and 0.3 percentage points respectively. The largest increase in absolute terms was in Yorkshire and the Humber, with 25,000 more people unemployed than in the previous quarter.

The biggest decreases in unemployment were experienced in the North East (down by 0.9 percentage points) and the South West (by 0.7 percentage points). However, the North East continues to have the highest rate of unemployment on the ILO measure out of the nine English regions, at 10.4%.

In the East Midlands, unemployment increased by 10,000 individuals, reaching 193,000 individuals. The ILO unemployment rate in the region is currently above the UK average, at 8.3%, following successive quarters where unemployment in the East Midlands has been lower than the national level.