Friday, 24 January 2014

January 2014 Labour Market Statistics Briefing

On Wednesday morning, the Office for National Statistics published the monthly Labour Market Statistics (LMS) release.   This summarised Labour Force Survey data for the period September to November 2013 and Jobseeker’s Allowance (JSA) claimant data for December 2013.   This release indicated further improvement in headline labour market indicators, including a more significant fall in the unemployment rate than predicted by many commentators.

The number employed increased on the last quarter and is the highest on record.  Although the employment rate also increased, it remains  below the pre-recession peak.  This continues to demonstrate that, although the number of people in jobs has been increasing quarter-on-quarter, the total size of the UK resident population is also increasing significantly, due to both natural change and migration.

The unemployment rate fell by 0.5 percentage points on the quarter to 7.1%.  This has prompted considerable coverage in the media, as the rate has now fallen close to the 7% threshold identified in the Bank of England’s forward guidance as the point at which the Monetary Policy Committee (MPC) would consider raising interest rates.  This point has been reached sooner than expected when Governor Mark Carney announced the forward guidance following his appointment last summer.

However it is important to emphasise a couple of points.  Firstly, the nature of forward guidance.  An unemployment rate of 7% does not represent a trigger after which the Bank will automatically increase interest rates.  The unemployment rate is one of a number of indicators, collectively representing the overall health of the economy, which the MPC will monitor and may then start to consider  whether or not to increase interest rates.  Mark Carney has since confirmed that a rate rise is not being considered in the short-term.  As we noted in last month’s briefing, the Bank is keen to avoid premature speculation around rate rises which could pose a significant threat to the sustainability of the recovery.  It is now possible that the Bank will announce a change in their forward guidance, perhaps adjusting the loose threshold from 7% to 6.5%, in order to adjust to faster than expected strengthening of the labour market.

Secondly, it is important to note that the unemployment rate and the number unemployed remain significantly higher than pre-recession levels.  At the start of 2008, the unemployment rate was just over 5%, 2 percentage points lower than currently, whilst the number unemployed was 1.6 million, compared to 2.3 million unemployed according to the latest data.   Weak wage growth, again evident in the latest data, alongside continued concerns about under-employment and relatively low labour productivity (output per hour fell between quarter 2 and 3 of 2013) are key factors that also threaten the sustainability of recovery.  Also of interest is the extent of geographical variation in the strength and pace of recovery across the UK.  This week’s labour market data shows that, although unemployment fell in every English region except for the South West, trends in the number and rate of employment were very varied.  The two midlands regions experienced significant increases in employment compared to small increases in the North West and Yorkshire and falls in both the employment number and rate across the southern regions.

Unemployment and Employment Rates
According to the latest Labour Force Survey data (for September to November 2013), the unemployment rate[1] fell by 0.5 percentage points on the previous quarter, to 7.1% of the economically active population aged 16 and over.  The number unemployed fell by 167,000 on the previous quarter  (June to August 2013).  The total number of adults who are estimated to be unemployed is 2.32 million.

The number of people unemployed for over one year has also decreased, by  61,000 on the previous quarter (to a total of 839,000). 

The employment rate (for adults aged 16-64) increased on the previous quarter, by 0.5 percentage points to 72.1%, equivalent to 30.15 million resident adults in employment in the UK (an increase of 280,000 on the previous quarter).

Earnings Estimates
Earnings growth remains weak and below the rate of inflation.  Total pay (including bonuses) and regular pay (excluding bonuses) both increased by only 0.9% between the September to November 2012 and September to November 2013.

This rate of earnings growth remains lower than the rate of inflation, despite the fall in inflation in December 2013 to 2% on the Consumer Prices Index (CPI) - the lowest rate since November 2009 and a return to the target rate set by the Treasury.   Therefore, despite inflation being ‘on target’, weak pay growth means that earnings are still being squeezed in real terms.

Job Seekers’ Allowance Claimants
The number of Jobseekers’ Allowance (JSA) claimants in December 2013 fell on the previous month, by 24,000, whilst the rate was down 0.1 percentage points to 3.7% (and down 0.9 percentage points on the same month a year earlier).  This is the seventh consecutive month in which the rate of claimant count unemployment has fallen. 

Redundancies and Vacancies
In the three months to November 2013, 112,000 people were made redundant, down 21,000 from the previous quarter and down 47,000 from the same period a year earlier.

The number of vacancies (advertised through Jobcentre Plus) in the three months to December 2013 increased by 22,000 on the previous quarter to total 569,000.  The number of ILO unemployed adults to every one vacancy in the three months to November 2013 was 4.1, down 0.5 percentage points on the previous quarter.

Key Regional Developments

  • Compared to the previous quarter, unemployment rates and levels fell in all English regions except for the South West.  The most significant falls were in the East and West Midlands, where the numbers unemployed fell by 28,000 and 32,000 respectively whilst the rates fell by 1.3 percentage points in both cases.
  • The North East continues to have the highest rate of unemployment of the nine regions, at 10.3%, although this fell by 0.1 percentage points on the previous quarter.  In the South West, the unemployment rate increased by 0.5 percentage points to 6.8%.
  • In the East Midlands, the unemployment rate was 6.4%, equivalent to 149,000 individuals unemployed according to the ILO definition.  Employment in the East Midlands increased significantly, by 49,000 individuals and 1.1 percentage points, to a rate of 72.6% - above the UK average of 72.1%.  As in the case of the UK, the number of people in employment in the East Midlands now exceeds the pre-recession peak, at 2.2 million, but the rate remains below -  as the employment rate in the East Midlands consistently exceeded 73% through 2007 and 2008.

[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.