Employment gains set to slow further

The labour market rebound slowed in August, with 246,000 jobs added, down from 419,000 in July, and the pace of gains is set to slow further. The initial phase of strong gains was driven by the return to work of those people that were only temporarily laid off during the lockdown. But the number of people on temporary lay-off is now little more than 200,000, down from 1.6 million in April. That means over 80% of those still out of work are on permanent lay-off. Signs of an impending second wave of the coronavirus do not bode well either, particularly for employment in those customer-facing service sectors most vulnerable to fresh restrictions. Even if restrictions are not re-imposed on the hospitality sector, the cooler weather poses a challenge and there are already signs that restaurant visits are dropping back. The unemployment rate should at least fall below 10% in September, from 10.2% in August, and we expect it to continue to decline in the coming months even in the event of a second wave of COVID-19. But the improvement from here is likely to be much slower than it has been since April, and we expect the unemployment rate to remain above 6% for the next couple of years.