Recovery was fragile before Coalition’s cuts began to undermine confidence

There are warning signs in today’s unemployment stats that the recovery was fragile even before the coalition’s enthusiasm for cuts started choking confidence.

The ice we’re skating on is getting thinner; there’s much more good news than bad in today’s employment figures, but at the same time there are warning signs that the recovery was fragile even before the coalition’s enthusiasm for cuts started to undermine confidence.

The key thing to remember when reading the labour market statistics is that they are a picture of the past; in today’s case, they’re show how things stood in early summer – May to July. The headlines in the Office for National Statistics’ press release compare these figures with the previous quarter (February to April) and that is what most newspaper stories concentrate on, but it is also useful to look at changes since last month’s figures (which covered April to June.)

These are the first statistics where practically the whole period is post-election, but of course, it is too early to say they show any effect of the new government’s policies. What stands out is the strong employment performance:

• There were 29,158,000 people in employment;

— This is 184,000 higher than the previous month,

— And 286,000 higher than the previous quarter.

• The employment rate was 70.7 per cent;

— This is 0.2 points up on last month,

— And 0.4 up on the quarter.

This performance was entirely due to a 308,000 quarterly increase in private sector employment. Public sector employment was down 39,000 on the month and 22,000 on the quarter, a figure confirmed in separate figures for public sector employment released today. Employment was down in central government, local government, the civil service – every sector except education and public corporations (which includes the nationalised banks).

Over half the increase compared with the previous quarter is accounted for by a 166,000 rise in part-time employment, but full-time employment rose by 121,000 on the quarter, 44,000 compared with last month. Temporary employment is up on the quarter (+74,000) but slightly down compared with last month (by 3,000).

One point worth noting is that men’s employment, which suffered more than women’s in the initial phase of the recession, has been increasing more in recent months:

Employment-rate-by-gender-September-2010

The unemployment figures also looked reasonably good. The Labour Force Survey measure (based on asking people if they don’t have a job, are looking for one and can start work at short notice) shows unemployment at 2,467,000. This is up 10,000 on last month’s figure (though the rate is unchanged at 7.8 per cent) but down 8,000 on the quarter (and the rate is down 0.1 points).

So far the economy has done quite well on this front – eighteen months ago I thought we would have reached 3 million unemployed by now, but so far we have (just) avoided going over the 2.5m mark. Compared with the last recession, the unemployment performance looks even better:

Unemployment-1990-2010

One driver of the good news on unemployment is the decline in redundancies. In May – July this year there were 142,000 redundancies, 10,000 fewer than in April – June, 31,000 fewer than in Feb – April and 91,000 fewer than in May to July 2009. The number of redundancies is down in every industrial category except public administration, health and education and the redundancy rate (the number of redundancies per thousand workers) is down from 9.3 a year ago to 5.8 in the latest figures.

The picture for vacancies, while not quite as cheery as this is still pretty good:

     
  No. of vacancies No. of unemployed people per vacancy
     
May/Jul 2009 429,000 5.8
Feb/Apr 2010 472,000 5.2
Apr/Jun 2010 490,000 5.0
May/Jul 2010 481,000 5.1

On inactivity there is good news as well, with the number of economically inactive working age people down 88,000 compared with last month and 158,000 compared with the previous quarter. The results are more mixed for the number of economically inactive people who say they want a job, however, with a fall of 28,000 on the quarter but an increase of 23,000 from last month’s figures. This is an important figure, because it is as close as we get to a statistic for hidden unemployment and if we add it to the number unemployed we get a “want work” level of 4,829,000: up 33,000 on the previous month, but down 36,000 on the quarter.

Overall, these are quite encouraging results and Yvette Cooper could reasonably claim to have handed over a labour market that was starting to reflect the GDP recovery and in better shape than it had been at the same stage of the 1990s recession. But there are signs of fragility. First of all, notice that the comparison with the previous quarter looks better than with the previous month, especially the unemployment and “want work” levels.

Secondly, the figures for the “claimant count” measure of unemployment are not as good. For most purposes the claimant count (the numbers claiming Jobseeker’s Allowance) isn’t as useful as the LFS measure – JSA is such a lousy benefit there are plenty of genuinely unemployed people who don’t qualify. But it does have the advantage of being more up to date, with the most recent figure being for August when the figure rose for the second month in succession:

   
  Claimant count (to 5 s.f.)
   
June 2010 1,460,100
July 2010 1,461,200
August 2010 1,466,300

Third up, there’s been an increase in short-term unemployment. During a recovery you would expect to see short-term unemployment (under 6 months) coming down before the number for longer durations. As fewer people come on to the register, and previous cohorts either get jobs or move into long-term unemployment this should be the first sign of an improving labour market – and indeed, this is what happened last year and at the start of this year. But this month’s figure of 1,186,00 is 27,000 higher than last month and 14,000 higher than the previous quarter. This could just be a blip, but it does worry me.

Then there’s been an increase in unemployment amongst 18 – 24 year olds. This age group tends to be first out and last in to jobs, so the 4,000 increase on last month and 16,000 increase on the quarter could be another rumble on the horizon.

Finally there’s the problem of involuntary part-time and temporary work. The improved employment figures haven’t led to a reduction in the number of people who are only doing ‘atypical’ jobs because they couldn’t find a permanent full-time job – the level and the rate are still rising:

         
  People in involuntary
temp jobs (to 3 s.f.)
% People in involuntary
p/t jobs (to 4 s.f.)
%
         
Feb/Apr 2010 537,000 35.8% 1,083,000 14.2%
Apr/Jun 2010 565,000 35.9% 1,079,000 14.1%
May/Jul 2010 569,000 36.1% 1,116,000 14.4%

Taken together, these figures would be very encouraging if we were looking at them confident that policies to sustain the recovery were in place. But they do not indicate a labour market that’s strong enough for us to claim that growth is self-sustaining. The fact that the comparison with three months ago is stronger than with last month could even be a hint that we were already heading into stormy waters before the cuts began.

11 Responses to “Recovery was fragile before Coalition’s cuts began to undermine confidence”

  1. Miljenko Williams

    RT @leftfootfwd: Recovery was fragile before Coalition’s cuts began to undermine confidence: http://bit.ly/caVMky

  2. Elrik Merlin

    RT @leftfootfwd: Recovery was fragile before Coalition’s cuts began to undermine confidence: http://bit.ly/caVMky

  3. James Evershed

    RT @leftfootfwd: Recovery was fragile before Coalition’s cuts began to undermine confidence: http://bit.ly/caVMky

  4. Melissa Nicole Harry

    RT @leftfootfwd: Recovery was fragile before Coalition’s cuts began to undermine confidence: http://bit.ly/caVMky

  5. Sasha Taylor

    RT @leftfootfwd: Recovery was fragile before Coalition’s cuts began to undermine confidence: http://bit.ly/caVMky

  6. Today’s Job Figures | ToUChstone blog: A public policy blog from the TUC

    […] have a post over at Left Foot Forward looking at this month’s labour market statistics. There’s some very good news – […]

  7. Mr. Sensible

    This is why all Osborne’s and IDS’s rhetoric about getting people back to work isn’t really matched by reality.

  8. John Green

    These figures are very depressing for all those left-leaning individuals praying for a double-dip recession. It ain’t gonna happen!

    The private sector created over 280,000 new jobs in the last three months. Not bad for a start. This led to the biggest jump in employment figures for a decade. Just as good is the news of a jump in the number of people registering at job centres. Maybe some of the layabouts on long-term benefits are getting the message.

    As the private sector grows under the government’s stimulus package (reduced NI contributions for start-up companies, reduced corporation tax, etc) job creation will continue. This will accelerate as we slim down the public sector which is acting as a break on economic growth.

    Public sector workers earn more than workers in the private sector doing similar jobs, get better pensions, have more days off through sickness and absenteeism. The productivity of the public sector has dropped like a stone under New Labour. This imbalance in the economy must be address urgently.

    The support for widespread industrial action, demanded by the union dinosaurs, given by all three Miliballs does them no credit. We know that they would be singing a different tune if the New Labour coalition was still in power and was now making its planned £44 billion to “frontline service”, cuts it was too gutless to admit to while in office.

  9. Richard

    John Green,
    What planet are you from?
    Summer jobs for students does not a recovery make. Public sector jobs that have now gone to the private sector, Cleaners bin men and road repairs. All low paid jobs now even lower in the private sector.
    The inbalance with Doctors nurses and police officers now take the average wage up by £470 wow! who would have thought it.
    The average wage is still less than 20K and the vast majority are part-time women who recieve an average pension entitlement of 2.5K pa. Tell me again what did Fred the Shred get!

  10. John Green

    Richard,

    I reside on planet Earth, along with George Osbourne and most independent financial experts. I am told even Fidel Castro has joined us. I don’t see many many socialists around!

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