The headline labour market figures have not yet caught up with the fall in employment of between 500,000 and 1 million revealed in the timelier data for April. Given the shut down of so many businesses, the government can count the fact there have not been more job losses so far as a success. But we suspect that unemployment will continue to rise in the coming months.
Sanguine headline figures belie hundreds of thousands of layoffs
- The headline labour market figures have not yet caught up with the fall in employment of between 500,000 and 1 million revealed in the timelier data for April. And we suspect that unemployment will continue to rise in the coming months.
- Employment rose by 211,000 in January to March compared to the previous three months and the unemployment rate fell from 4.0% to 3.9%. But the vast majority of the survey took place before the lockdown was imposed on 23rd March, so the figures were supported by a healthy labour market in January and February. There was some sign of what is to come in the average hours and earnings data. Average hours worked per week fell from 32 hours in the first week of March to 25 hours by the end of the month. That 20% fall that pulled the three-month average from 31.8 to 31.4 (a 1.3% fall). That was why average weekly earnings fell by 0.7% m/m, which pushed down the single month annual rate from 2.5% to 1.5%. (See Table 1.) Based on PAYE earnings data, earnings might have fallen by a further 2.9% m/m in April.
- The timelier employment data show that a large rise in unemployment is underway. Data from HMRC shows the number of people paid via PAYE fell by 457,000 in April on top of a 13,000 fall in March. If unemployment increased by the combined 470,000, the unemployment rate would rise to almost 5.5%. But its probably worse than that as it doesn’t include the self-employed. The claimant count rose by 856,000 from 1.2 million in March to 2.1 million in April, meaning the share of the labour force claiming out-of-work benefits rose from 3.5% to 5.8%. (See Chart 1.)
- The fact unemployment hasn’t already shot up far higher given the huge fall in GDP and temporary closure around a quarter of businesses is a good result for the government, which reflects the 7.5 million people on its furlough scheme that may otherwise have been made redundant. Nonetheless, we forecast that the unemployment rate will continue to rise in the coming months, particularly from August when employers must start contributing to furloughed employees’ wages. Our forecast is that the unemployment rate will rise to almost 9%. While much of that jump should be reversed when businesses start to get back to normal, we still expect the unemployment rate to remain elevated over the next few years.
Chart 1: Measures of Labour Market Slack (%)
Sources: Refinitiv, ONS
Table 1: Labour Market Data
Average Weekly Earnings
(3m av. %y/y)
Andrew Wishart, UK Economist, 07427 682 411, email@example.com