20th May 2013: Labour Market Round-up

This week’s Labour Market Statistics release from the Office for National Statistics (ONS) confirms that the buoyancy of the jobs market came to an abrupt halt in the first quarter of this year. After an impressive rise in employment of close to 600,000 in the year to 2012q4, there was a decline of 43,000 in the first quarter of 2013. Unemployment rose by 15,000 and the unemployment rate ticked up by 0.1 percentage point to 7.8%.

The details of the release reveal that this fall in employment was largely due to a decline in selfemployment and part time working of 42,000 and 53,000 respectively. These two areas had been responsible for much of the employment growth since the recession, but there has been a clear weakening in these areas over the past six months. While growth in full time employees during 2012 had been sufficient to offset this, the latest results show that the pace of expansion here has also slowed sharply to just 11,000 in 2013q1, compared to an average of 100,000 over the previous three quarters.

The ONS’ Workforce Jobs Survey reveals a very disparate performance between the sectors during 2012. Job creation was mainly driven by the service sector, which added 452,000 jobs. In contrast, construction and manufacturing shed a large number of jobs.

Within services, there was also a very uneven performance. Highskilled business services was the biggest generator of employment and while consumer services sectors also proved reasonably vibrant, there was a notable slowdown in later 2012 in areas such as retail, accommodation & food services which may reflect an unwind in Olympics related hiring. In stark contrast, public services shed 117,000 jobs (after adjusting for special factors) reflecting the impact of the government’s austerity programme.

Alongside this, wage data offered little comfort either. Annual total earnings growth slowed to just 0.4% year-on-year in the first quarter, the slowest pace since March-May 2009. Regular pay growth (which excludes bonuses) also eased further to 0.8% over the same period, which is the lowest rate since comparable records began.

All in all this is a disappointing but unsurprising set of results. Labour market trends appear to be falling back in line with the sluggish pace of economic growth and we would not be surprised to see another quarter or two of employment declines. For the near term, the combination of extremely weak wage growth and falling employment, together with elevated inflation adds up to a squeeze on incomes in 2013.

Beyond that however, labour market conditions should begin to turn around again as activity picks up in late 2013 supported by better global economic conditions and easing pressures on household incomes. A reversal in inflationary pressures and a gradual recovery in wage growth should provide support to incomes and spending.

Moreover, if the better tone of recent business surveys continues then this lull in labour market conditions could prove shorter than expected.