Decisive times ahead for UK employment

Last month's fall in unemployment was a welcome, if rare, economic news item, but with spending cuts yet to come into full force, the outlook is uncertain.

The fall in unemployment reported last month, to 7.7% from 8%, was understandably seized on by the ruling coalition as evidence of the success of its economic policies. Not only did the unemployment rate fall, but the number of people in employment grew by a tenth of a percentage point, which isn’t always the case when the jobless rate falls.

Nevertheless, there may be clouds on the horizon. The figures themselves are not wholly encouraging. The number of people who claimed Job Seeker’s Allowance (JSA) in the three month period surpassed estimates, rising by 19,600, compared with estimates of a 7,000 increase. This was the fastest rise in almost two years (since July 2009) with the figure now standing at 1.49m

“The number of men claiming JSA increased by 11,100 to reach 1.01m and the number of women claimants increased by 8,500 to reach 483,700, the highest figure since September 1996,” the ONS said.

And the average basic salary across Great Britain rose by 2% to £432 per week, compared with the same period the year before. However, the rate of increase was the slowest since August 2010.

Given that the government’s spending cuts have yet to take full effect, it remains to be seen whether the private sector can pick up the slack.

“The next few months will be critical for the UK labour market,” said Institute for Employment Studies director Nigel Meager after the figures came out.

“During this period the effects of public spending cuts will start to show up in a major way in the employment figures.”

He said that some employment indicators “reveal signs of underlying weakness, with reduced numbers of vacancies, and a surprising fall in the number of hours worked in the economy.

“The overall picture suggests a fragile, weak recovery in the labour market, which could easily be tipped into reverse, as the public sector job loss continues and intensifies.”

Leaving aside the employment figures, much economic data points towards the continuation of tough times. Just a day after the employment figures were released, retail sales figures showed a sharp fall in May following a buoyant April, amid warm weather and a string of bank holidays, demonstrating the potential for volatility in economic figures. Figures from GfK NOP later in the month showed a decline in consumer confidence, also after a previous bank holiday boost. Its consumer confidence index, a measure of personal finance, general economic situation and the ideal climate for major purchases and personal savings, slipped four points to a negative 25 from May, when it had increased 10 points.

House prices remain weak and recent figures from the manufacturing and construction sectors have been subdued. Manufacturing has been tipped as possible means to improve employment levels as the weak pound boosts exports, but that depends on a buoyant global economy, as the latest figures demonstrate. Markit/CIPS said that its purchasing managers’ index (PMI) fell to 51.3 in June from 52 in May. “Slumping consumer demand in key Eurozone export markets and the US, plus policy tightening in China and other emerging markets, are likely to continue to act as major counteracting drags on demand for UK exports,” it said.

The construction PMI for the month fell to 53.6 from 54 the previous month, with Markit CIPS noting ominously that that employment retreated at the fastest pace since January.

So, while last month’s employment figures are to be welcomed, as Meager says “the jury is still out” on what they actually mean.