July 2015 CBI/Pertemps Labour Market Update

Employment Falls For The First Time In Two Years

Data released today by the ONS indicated a softening in momentum in the labour market.

Disappointingly, employment has fallen for the first time in two years and unemployment has edged up. Yet, the fall in employment was mainly driven by a decline in the number of people working for themselves, as opposed to for a business. And set against a backdrop of strong employment growth since mid-2013, it is to soon to tell whether this is simply a blip or a longer-term trend.

There was some more positive news too however. The rate of pay growth in the private sector edged up once again. This, combined with rock bottom inflation,] means that households will continue to feel better off.

Number of people in work falls...

Marking a departure from the recent trend, today’s data show that employment has fallen for the first time in two years.

There were 67,000 fewer people in work in the three months to May compared to the previous quarter (Exhibit 1). As a r esul t , t he empl oyment r at e edged down very slightly to 59.7%.

While of course any fall in employment is a worry, it is important to put this in context. Employment has broadly been rising since mid-2013, increasing by 265,000 in the last year alone.

Looking forwards, provisional data on vacancies shows a slight softening (-17,000 in the three months to June), although in contrast, survey data on employment intentions remains fairly upbeat.

Ultimately we will need to wait and see what future data on employment levels tell us before we can fully understand the direction of travel.

However, the fall in employment is a timely reminder of the importance of Government treading carefully in the labour market and protecting the flexibility that gives Britain a great record on jobs.

...driven by a decline in self-employment

The fall in employment was driven by a decline in the number of people working for themselves, rather than for an employer.

  • Self-employment fell by 55,000 in the three months to May compared to the previous quarter.

  • And, over the same time period, the number of people working for a business remained broadly unchanged (+5,000).
  • Looking at the figures in more detail reveals a more decisive shift from part- to full-time employment than in recent months. In the three months to May, the number of part-time employees fell by 40,000 while the number of full-time employees increased by 45,000.

The number of people unemployed rises...

As the number of people in work fell, the number of people unemployed rose.

  • As Exhibit 2 shows, compared to the previous quarter, 15,000 additional people were unemployed in the three months to May. The unemployment rate was unchanged at 5.6%.
  • However once again, this must be set in the context of a continual decline in unemployment since early 2013.

 

The rise in unemployment seen in today’s data has mostly been driven by the short-term unemployed:

  • Not surprisingly given the fall in employment this quarter, the number of people unemployed for up to six months rose (+51,000).
  • Yet at the same time the number of people unemployed for six to 12 months also rose (+17,000).
  • On a more positive note however, the number of people out of work for over a year continued on a downward trajectory (-53,000).

 ...but youth unemployment falls

While unemployment rose overall, today’s data provided welcome news that the position of young people in the labour market has improved slightly.

  • In the three months to May, 13,000 fewer young people were unemployed compared to the previous quarter.
  • This fall was particularly pleasing as it was due to a decline in the number of unemployed 16-24 year olds who were not in employment or education (-20,000).
  • That said, there is still a long way to go before the youth unemployment rate, which currently stands at 15.9%, returns to its pre-recession rate (14.0%).

More people exit the labour force

While 67,000 fewer people were in work in the three months to May, the number of people unemployed rose by just 15,000. Part of this mismatch can be explained by a rise in the number of people “economically inactive”.

Economic inactivity is a term used to describe those people who are not in employment but are not counted as unemployed because they have not been actively looking for work or are unable to start work.

In the three months to May, there was a net increase in the number of people economically inactive of 30,000. This was driven by a rise in the number of people with longterm health conditions.

Despite the rise in inactivity, many people in this group wanted to be in employment. In fact, the number of people economically inactive but wanting a job rose by 46,000 in the three months to May.

Half of UK nations and regions see employment fall...

Turning to look at local labour markets, the fall in employment across the UK as a whole was driven by a decline in the number of people in work in half of the UK’s
nations and regions.

As Exhibit 3 overleaf shows, London (-46,000), the south east (-29,000) and the north west (-26,000) saw the most significant declines in employment.

Other areas where fewer people were in work compared to the quarter before were Northern Ireland (-18,000), the north east (-14,000) and Yorkshire and Humber
(-13,000). In Scotland employment remained broadly unchanged (+1,000).

Partially offsetting this decline in employment was an increase in employment in the East and West Midlands (+7,000 and +15,000 respectively) and the south west (+17,000). Wales (+19,000) and the East of England (+20,000) saw even stronger employment growth.

...and a third see unemployment rise

Reflecting the fall in employment, unemployment rose in a third of UK nations and regions.

  • London (+21,000) and Yorkshire and Humber (+18,000) saw the most significant increases in unemployment.
  • Unemployment also rose, albeit to a lesser extent, in Wales (+8,000) and the south east (+6,000).
  • It remained more or less the same in Northern Ireland, the north west, the south west (all +1,000), the north east and East Midlands (both -2,000).
  • In contrast, in the West Midlands (-7,000), East of England (-13,000) and Scotland (-15,000) unemployment fell.

Private sector pay growth picks up further Pay data was the other set of labour market statistics released by the ONS today.

This data shows that regular pay growth (which excludes bonuses) in the private sector nudged up again. In the three months to May annual growth in regular pay stood at 3.3%, up from 3.2% in the three months to April (Exhibit 4). The story was similar across the economy as a whole with pay rising to 2.8% from 2.7%.

Turning to look at total pay (which includes bonuses), annual growth in the private sector picked up strongly, speeding up from 3.3% in the three months to April to 3.8% in the three months to May. This reflects strong growth in bonus payments over the same period (1.9% to 4.2%).

The picture in the private sector generally mirrored that across the economy as a whole with total pay growth rising from 2.7% in the three months to April to 3.2% in the three months to May.

The rise in pay growth combined with an inflation rate that continues to hover around zero means households will remain better off.

 

Follow us on LinkedIn: