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.
