Will the Labour market take a turn for the worse this week?

This week we should find out whether the labour market has taken the turn for the worse that many economists have been expecting for some time.

This week we should find out whether the labour market has taken the turn for the worse that many economists have been expecting for some time. The latest Labour Market Outlook from the Chartered Institute for Personnel and Development (a quarter survey of HR managers) is rather downbeat.

Although there are still more managers expecting to recruit workers than to make them redundant, those that are planning  redundancies expect this to affect a significantly larger proportion of their workforce – up from 3.6 per cent of workers in the Spring survey to 5.5 per cent in the Summer.

The survey showed an increase in the proportion of employers planning redundancies across different industries. Thirty per cent of private sector employers are planning redundancies, compared with 36 per cent for the public sector generally, 45 per cent in education and 63 per cent in local government.

The authors conclude that, while they expect employment to be stable over the next few months they disagree with the Office for Budget Responsibility about the prospects for the medium-term.

Whereas the OBR expects employment to rise next year, the CIPD believes that:

Further rises in unemployment in the next two years remain a distinct possibility as the private sector recovery is offset by the 600,000 public sector job losses the Government expects over the next five years.”

There have been some other negative indicators recently.

The July report of the Bank of England’s regional agents found that there was a “modest pickup” in private businesses’ employment intentions, but a lot of any increase in demand could be met by increasing the hours of existing staff, and new recruitment was likely to be of temporary staff, not permanent hirings. Public sector employers had already started reducing staff and further contraction was expected.

Household consumption is unlikely to make up for the demand about to be cut out of the public sector. The Nationwide building society’s Consumer Confidence Index fell further in June, reaching its lowest point for a year. Last week retail shares were hit when Next said that consumers were “cautious” and the was a “cooling of demand”.

Marks and Spencer have warned that they will have to increase prices to take account of rising commodity prices and the VAT hike and PricewaterhousCoopers has predicted a subdued Christmas.

This is the background against which we should judge the official employment and unemployment data, due on Wednesday morning. Last month’s figures had good headlines: the number of people in employment was up – the largest month-on-month increase since records began in 1971.

On the other hand, the increase was entirely due to a huge rise in self-employment – the number of employee jobs actually fell. As has become the norm in recent months, many of the jobs being created were part-time or temporary; part-time jobs accounted for 45 per cent of the increase, temporary jobs a similar proportion.

I’ll go out on a limb and say that I don’t expect another large increase in employment, but a smaller rise wouldn’t be surprising; the worries are about the medium to longer term. The CIPD survey and the other straws in the wind are more of a reminder that we’re unlikely to see the recent increases being sustained.

Public sector cuts are starting to have an impact on the employment figures and lower consumer confidence is going to depress employment in retail and consumer goods; recent export performance has been quite encouraging, but the bad news from the USA should teach us to be realistic about the number of jobs that are going to be created by foreign demand

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