Strength in labour market figures, but a disinflationary outlook from the Bank

The monthly figures show positive real earnings for the first time since 2009.

Job Centre2j

The monthly figures show positive real earnings for the first time since 2009

For the fifth quarter in a row, employment rose and unemployment fell. The employment rate at 73 per cent remains at its pre-crisis peak, though the 6 per cent unemployment rate is still above the rate of 5.2 per cent ahead of the crisis, amounting to around 300,000 jobs.

Over recent months the TUC have argued that these gains should be set against the huge scale of underemployment and the prolonged falls in real earnings. Since the start of the crisis there have been significant changes to the composition of the labour market, with a greater role for part-time work, and very large increases in the numbers of self-employed. These trade-off against a reduced role for employees in full-time work.

Only over the latest two quarters has this tendency been arrested, with employment in full-time employee posts more than accounting for the overall change in jobs. In a majority of the other quarters since the coalition took office, the majority of newly-created posts have been part time and/or self-employed.

Change in employment, quarter compared with previous quarter, thousands

Unemployment stats Novj

Over the whole period since May 2010, around half of new jobs have been full-time employee posts, and the other half self-employed and part-time. But, as above, compared with the pre-crisis peak, there has been no gain in full-time employee posts, when historic proportions would have meant a rise of around 625,000.

Lastly here, it is also notable from the chart that the overall rate of increase in employment in the latest two quarters is down from the headier figures at the turn of the year.

The weakness in real earnings figures is now almost universally understood, undoubtedly because people feel it in reality. TUC analysis has shown the post-crisis period to be the longest period of falling real earnings on record. The latest (September) figures show average weekly earnings up 1.3 per cent on a year ago; this is marginally ahead of the September CPI at 1.2 per cent.

Directly comparing these two annual rates, the monthly figures show positive real earnings for the first time since 2009. But as the Labour Party observed, “there is a huge amount of lost ground to catch up”. The AWE figure remains in territory that is normally unchartered; before this year, annual AWE growth had been below 1 per cent only once in the post-war period, and that was at the depths of the ‘great recession’ in 2009. The CPI figure is at its lowest for five years, by a good margin.

The obvious question is whether the labour market is beginning to normalise, to move away from this reliance on underemployment and falling earnings. Most obviously, such a notion runs against sentiment, with a recent ‘populus’ survey showing only one in seven feeling any benefit from any revival in economic activity.

At today’s November Inflation Report press conference, however, the governor of the Bank of England argued that “the economy will continue on its path towards normalisation”. And he observed “the first tentative signs of the long-awaited pick up in wage growth” (though in questions cautioned that “one swallow doesn’t make a summer”).

But these remarks were made against the backdrop of a very downbeat assessment of global prospects, with indicators “moribund”.

And while relatively upbeat on UK domestic demand, the prospects for UK nominal earnings growth were basically unchanged from their last assessment (though down marginally in 2015). Improved gains to real earnings were therefore driven only by fairly significant downward revisions to the inflation forecast, reflecting in part global conditions, but also low growth in unit wage costs and hence feedbacks from recent earnings outcomes.

The Bank now expect on the balance of probabilities to be writing to the chancellor in the next few months explaining below 1 per cent inflation. Moreover, in spite of downward revisions to inflation, real household post-tax income growth was shaved down by a quarter a percentage point in both 2014 and 2015, to 1½ and 1¼ per cent respectively.

These disinflationary conditions remain a non-trivial matter, and progress to normalisation is far from guaranteed. Though plainly not everybody is powerless in this.

Geoff Tily is a senior economist at the TUC

11 Responses to “Strength in labour market figures, but a disinflationary outlook from the Bank”

  1. Leon Wolfeson

    “The obvious question is whether the labour market is beginning to
    normalise, to move away from this reliance on underemployment and
    falling earnings.”

    No evidence for it. We don’t have a recovery, we have a bubble in the city.
    And we’re expecting below 1% inflation, at the same time as cuts are happening to basic services, it’s disgusting.

  2. sarntcrip

    DUBIOUS PROMISESOF INCREASED WAGES WEHEARD FROM BoE LAST YEAR NEVERMATERIALISED A PITIFULLY SMALL CHANGE IN MINIMUM WAGE SCEWS THE FIGURES WE ARE GOING NO WHERE FAST BUT HEY OUR TAXES ARE FILLING THE COFFERS OF THE BANKS AGAIN THROUGH QE WHILE THE DEBT GETS BIGGER AND THE BANKSSTIL NOT LENDING AS THEYSHOULD BUT BONUSES STILL SHELLED OUT

  3. sarntcrip

    STAGFLATION ANDRECESSION HERE WE COME WHO WILL PAY MOST FOR IT THE VULNERABLE ALLTHE TIME THE SELFSERVATIVES ARE IN POWER

  4. Leon Wolfeson

    Uh…

    Inflation is LOW. That’s part of the issue, we’re refusing to borrow.

  5. madasafish

    Refusing to borrow?

    I take it you think borrowing £100B a year is not borrowing then?
    🙂

  6. Leon Wolfeson

    We’re borrowing far too little, and much of what we borrow is corporate welfare.

    The “road to ruin” you refer to is that we are looking down the barrel of deflation because of your parties policies, we need to borrow SO badly…

  7. madasafish

    What party?

    I am a member of no party and have supported various over the years depending on their policies and personal integrity.

    If you think we are borrowing too little, no doubt you think we should end up like Greece.. Debt of over 170% of GDP and huges austerity and being bailed about by the EU as no-one else will lend to them.

    Reminds me of the IMF and the UK – and the results? NHS spending fell in actual terms – the first time ever .And the only time.

    You clearly think there is a money tree.

    But hey ho, some people fail to learn anything from past mistakes..

  8. Leon Wolfeson

    Yes yes, all too far to the left for you.

    You spew nonsense, when Greece’s problems are different, but we’re going to head down past them if we don’t pull up from the death cycle you are so keen on…austerity creates the need for bail-outs, of course.

    You, indeed, fail to learn from your mistakes as you deny fiat currency exists.
    I’m sure you believe in the magic jobs tree, on the other hand.

    As you ignore the NHS funding cut which happened, in “actual” terms, under the coalition and the far far bigger cut in actual funding for treating patients.

  9. madasafish

    NHS funding cut?

    The Guardian says not:

    “. The Department of Health’s (DH) planned budget this year (2014) of £113.035bn for the NHS in England is £12.6bn higher than the £100.4bn of 2010-11, the year the coalition took power.

    http://tinyurl.com/o5257c3

  10. Guest

    So you’re trying to paper over the small drop in the middle there, what a surprise! Factually, there was a drop.

    And you’re spewing some garbage about another right wing party I don’t support, and don’t vote for.

  11. John

    Now now, be fair; some of that money is going to parties and politicians.

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