Labour Market Looks Healthy

Data released today by the Office for National Statistics reveals a relatively heathy outlook for the labour market.

The headline figures show that employment rose once again in the UK, albeit at a slightly slower pace than in the recent past. Alongside this, unemployment fell, particularly amongst those who had been looking for work for longer periods of time.

Turning to the picture on earnings, there was a slight increase in the pace at which peoples’ pay packets are expanding. Despite this, pay growth remains below the average seen before the crisis. A material pick up in productivity is needed if wage growth is to accelerate at a sustainably faster pace.

Employment continues to rise Today’s data reveals that the number of people in work has risen for the seventh consecutive quarter.

  • In the three months to January 2016, the number of people in employment rose by 116,000 (Exhibit 1). Although this was a smaller rise than reported in recent months (employment rose by 205,000 in the final quarter of 2015, for example), it still represents healthy growth. 
  • The employment rate now stands at 74.1%. 
  • The growth in employment was mainly thanks to a rise in the number of people working for a business (+76,000, accounting for 65% of employment growth in the three months to January). Both full- and part-time employment rose at a similarly solid pace. 
  • The number of people choosing to work for themselves also rose in the three months to January (+25,000, accounting for 22% of the rise in employment), with all of growth in self-employment in full-time positions.

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  • The rise in self-employment was, however, slower than we saw towards the end of last year. This could indicate that there is less ‘slack’ in the labour market. This term describes an economy where there are more workers than jobs. That said, we will need to keep an eye on how a range of economic datasets progress in the near future as this concept is tricky to measure. 

Businesses in service sectors drive jobs growth

The Office for National Statistics also released a separate dataset today on the number of jobs created in different sectors of the economy. Data on jobs is distinct from data on employment as while a person is either in employment or not, it is possible to have multiple jobs. 

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Today’s jobs data shows that:

  • In the final quarter of 2015, firms in the accommodation & food services (+24,000), transport & storage (+19,000) and professional scientific & technical activities (+18,000) were key drivers of jobs growth (Exhibit 2). 
  • The education (+17,000), construction (+15,000), real estate activities (+14,000) and wholesale & retail trade (+13,000) sectors also saw healthy, albeit slightly less substantial, jobs growth. 
  • In contrast, the administration & support services (-24,000), information & communications (-18,000) and agriculture, forestry and fishing (-14,000) sectors saw some job losses.

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Unemployment continues on a downward trajectory...

Today’s data also show that UK unemployment fell. More specifically:

  • In the three months to January 2016, the number of people out of work and looking for work fell by 28,000 (Exhibit 3). 
  • While still a sizeable decline, this was a smaller fall than we have seen in recent months (in the final quarter of 2015, for example, unemployment fell by 60,000). 
  • There are now 1.69 million people unemployed, an unemployment rate of 5.1%. 
  • While in the recent past, declining unemployment was amongst people who had been out of work for both shorter and longer periods of time, the situation was slightly different this month.
  • Short-term unemployment (out of work and looking for work for up to six months) rose very slightly (+12,000). 
  • Medium-term unemployment (over six months and up to 12 months) fell a little (-11,000). 
  • Long-term unemployment (over 12 months) also fell, but by a slightly larger amount (-29,000). 

The slight rise in short-term unemployment is unlikely to represent the beginning of a more serious decline and instead could simply reflect the time it can take for people to move between one job and another.

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...but youth unemployment remains unchanged

Although total unemployment has declined, this was not the case for young people.

  • The number of 16 to 24 year olds out of work and looking for work was little changed in the three months to January (+5,000). 
  • Similarly, the youth unemployment rate remained just below its pre-crisis level at 13.7%. 
  • Employment grows in three quarters of the UK’s nations and regions… The positive employment growth seen across the UK as a whole was driven by three quarters of the UK’s nations and regions (Exhibit 4). 
  • Employment growth was strongest in Wales and the north east (both +33,000) in the three months to January, although the north west (+24,000) and East of England (+20,000) also saw healthy employment growth. 
  • The number of people in work also rose in Yorkshire & Humber (+19,000), the East Midlands, Scotland (both +17,000) and Northern Ireland (+10,000).
  • In the West Midlands (-1,000) and south east (-4,000) employment was broadly changed. 
  • However, in London (-18,000) and the south west (-33,000), employment actually fell.

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…while unemployment fell or was flat in the majority of places

Turning to unemployment, this either fell or was broadly unchanged in the majority of UK nations and regions.

  • It was in the East of England (-15,000), north east (-11,000), Wales (-8,000) and north west (-7,000) that unemployment fell in the three months to January. 
  • The number of people out of work and looking for work remained more or less stable in London, the south west (both -4,000), the West Midlands (-3,000), Yorkshire & Humber (-2,000), Northern Ireland (0) and the East Midlands (+3,000).
  • In contrast, unemployment edged up a touch in the south east (+8,000) and Scotland (+16,000). 

Pay growth creeps up a little

Turning to look at earnings, today’s statistics show that peoples’ pay packets are expanding at a slightly faster pace.

  • As Exhibit 5 shows, annual growth in regular pay (excl. bonus) in the private sector, edged up from 2.2% in the final quarter of last year to 2.4% in the three months to January 2016. However, regular pay growth is still subdued, and lower than the post-crisis high seen in spring of last year (3.4% in the three months to May). 
  • Total pay (incl. bonus) has also picked up a touch. In the three months to January, annual growth in total pay in the private sector stood at 2.3% in the three months to January, compared to 2.1% in the three final quarter of 2015. This increase was thanks to the pickup in base pay outlined in the previous bullet rather than stronger growth in bonus payments. 
  • While the low inflationary environment continues to support spending power at the till, underlying pay growth is still well below the average seen before the crisis began (4%). A material pick up in productivity is needed if wage growth is to accelerate at a sustainably faster pace.

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