The smaller-than-expected fall in employment in October shows that the government’s furlough scheme has minimised the labour market damage from COVID-19 so far and provides encouragement that there will be a steady trickle, rather than a tsunami, of job losses over the next few months.
Steady drip-feed of weaker news
- The smaller-than-expected fall in employment in October shows that the government’s furlough scheme has minimised the labour market damage from COVID-19 so far and provides encouragement that there will be a steady trickle, rather than a tsunami, of job losses over the next few months.
- In response to the government asking firms to shoulder a greater burden of the cost of their furloughed employees by paying 20% of their wages, firms shed more jobs in October. But the tapering of the furlough scheme did not lead to a surge in job losses. The 144,000 fall in LFS employment in the three months to October was far smaller than expected (consensus -252,000; CE -230,000). And employment is not declining anywhere near as fast as it did in May and June when it dropped by more than 300,000. (See Chart 1.)
- The rise in the ILO unemployment rate from 4.8% in September to 4.9% in October was smaller than expected too, taking the level of unemployment from 1.62m in September to 1.69m. And while the figures for November suggest that more bad news is around the corner, they do not suggest that a surge in unemployment lies ahead. HMRC PAYE employment dropped by 28,000 in November compared to October, leaving the cumulative fall in employment on that measure at 819,200 since February. (See Table 1.) And the 64,300 rise in the timelier claimant count measure suggests that unemployment is now rising at a much slower rate than in April, leaving the claimant count rate at 7.4%, up from 7.2% in October.
- The increase in the 3myy rate of average earnings growth from 1.4% in September to 2.7% in October (consensus 2.3%, CE 2.4%) also provided some encouragement. This partly reflects those workers who came off the furlough scheme and kept their jobs going from receiving 80% of their salaries on the furlough to 100%.
- Of course, a more marked weakening in the labour market is on the cards once the furlough scheme is withdrawn at the end of March. At that point, employment will fall back in line with GDP, consistent with the unemployment rate rising from 4.9% now to 7% in mid-2021. Clearly that’s not great, but if that’s the peak, then the government’s job furlough scheme can be hailed as a success.
Chart 1: Employment (Millions)
Sources: Refinitiv, Capital Economics
Table 1: Labour Market
Source: Refinitiv. 1 3m/3m. 2 m/m
Ruth Gregory, Senior UK Economist, +44 (0)7747 466 451, email@example.com