The remarkably small rise in unemployment in April suggests that the unemployment rate may not increase quite as far as we had anticipated. Even so, bigger rises are almost certainly on the way as the ILO measure catches up with more timely indicators of unemployment and firms engage in another round of redundancies as the government’s job furlough scheme is wound down.
Headline ILO unemployment figures not capturing full force of downturn
- The labour market figures for April suggest that the unemployment rate may not increase quite as far as we had anticipated. Even so, bigger rises are almost certainly on the way as the ILO measure catches up with more timely indicators of unemployment and firms engage in another round of redundancies as the government’s job furlough scheme is wound down.
- On the face of it, the ILO figures suggests that the labour market has been hardly hit at all by the 25% fall in GDP due to the coronavirus crisis. In the three months to April, the ILO measure of unemployment dropped by 8,000, leaving the unemployment rate unchanged at 3.9% (consensus 4.7%). And far from falling by 83,000 as the consensus expected, employment rose by 6,000 in the three months to April. This is partly a result of the government’s furlough scheme, as furloughed workers are classed as employed. And partly because those who are not on furlough are not actively seeking work. Indeed, 39,000 workers left the labour force in the three months to April.
- Even so, looking beneath the bonnet, the labour market clearly weakened dramatically in April if we look at the single month figures rather than three-month changes. Between March and April employment fell by 429,000 and unemployment rose by 34,000. Admittedly, the latter was more than offset by a big drop of 425,000 in the labour force, prompting only a small rise in the unemployment rate from 3.8% in March to 3.9% in April. But this is probably just postponing the inevitable. As the lockdown is eased and people who are out of work start searching for a job again, this will cause the unemployment rate to rise again.
- This tallies with the picture painted by every other labour market indicator. Since furloughed employees weren’t working, the total number of hours worked slumped by 8% 3m/3m in April. And the 20% pay cuts for workers that have been furloughed meant that the headline (three-month average of the annual) growth rate of regular average weekly earnings slumped from 2.7% in March to 1.7%, a five-year y/y low.
- Meanwhile, on the timelier claimant count measure, unemployment shot up by 529,000 in May to 2.8m. The cumulative increase since the trough in March now stands at 1.56m. Already, then, the claimant count has risen by more than the total 1.1m rise seen after the 2008/09 financial crisis. The claimant count unemployment rate surged from 6.3% to 7.8%, its highest since 1996. (See Chart 1.) What’s more, the HMRC Pay As You Earn (PAYE) data derived from company payroll tax records suggested that employment fell by 171,000 in May, after April’s 457,000 drop. If this fall were to feed through to higher unemployment, then that would prompt a rise in the ILO unemployment rate to 5.5% in May.
- Overall, today’s release leave us perhaps a little more hopeful that the unemployment rate will be slower to rise and won’t increase quite as far as we had previously anticipated. Even so, despite the apparent stability of the headline ILO unemployment rate, the other labour market indicators were pretty awful, suggesting the figures have yet to reflect the full force of the downturn.
Chart 1: Claimant Count & ILO Unemployment Rate (%)
Sources: Refinitiv, ONS
Ruth Gregory, Senior UK Economist, +44 7747 466 451, email@example.com