Here’s a handy thread from the Resolution Foundation on today’s UK jobs report:
Vacancies remained high (the ONS 3-month vacancy series is at a record level, while online vacancies are above 2019 levels but below peak). Overall, conditions in the labour market are ‘tight’. pic.twitter.com/QSIFErend5
— Resolution Foundation (@resfoundation) April 12, 2022
However, a buoyant labour market isn’t generating enough wage pressure to keep pace with soaring inflation, meaning pay is now falling sharply in real terms. Real average weekly regular pay growth (excl. bonuses) was -1.3% in February. pic.twitter.com/MutMXgpf6t
— Resolution Foundation (@resfoundation) April 12, 2022
The real pay squeeze is particularly significant for public sector workers, where regular pay growth in Feb fell to -3.8% (vs -0.8% in the private sector). Although, part of this gap will be down to furlough base effects, since most of the public sector didn’t use the scheme. pic.twitter.com/u3PN9Q68Mr
— Resolution Foundation (@resfoundation) April 12, 2022
As an aside: those above charts refer to ‘regular’ pay, which excludes bonuses. ‘Total pay’ growth, including bonuses, is stronger at the moment. Bonuses don’t really feature in the public sector, so the public-private pay growth gap is bigger if bonuses are included. pic.twitter.com/M16sESJyvq
— Resolution Foundation (@resfoundation) April 12, 2022
In today’s data there was also confirmation again that Covid has had a significant impact on participation. Inactivity rose again – unusual alongside ongoing falls in unemployment. pic.twitter.com/tRtiAWKTLP
— Resolution Foundation (@resfoundation) April 12, 2022
This suggests the workers who left the workforce during the pandemic – mainy older workers – aren’t being tempted back, and points (again) to this being a permanent ‘scarring’ effect of the pandemic rather than something temporary. pic.twitter.com/Zi8MAIlOzK
— Resolution Foundation (@resfoundation) April 12, 2022
Stepping back, 2022 is set to be a difficult period for many workers. With inflation set to rise to 8%, the pay squeeze will deepen. Near-record-low unemployment is a cause for celebration, but may not last if tough conditions for households feed through into spending.
— Resolution Foundation (@resfoundation) April 12, 2022
Public sector workers bear brunt of wage squeeze
Having been in the front line in the pandemic, public sector workers are now in the teeth of the UK’s wage squeeze.
Average public sector pay, including bonuses, rose by 1.9% per year in December-February. That means a deep pay cut in real terms, with CPI inflation hitting 6.2% in February.
Across the private sector, though, total pay rose 6.2%.
In finance and business services, earnings grew by 9.8%, with pay packets swelled by strong bonus payments.
The TUC say today’s data shows the sharpest monthly fall in public sector real wages on record, and are urging the government to help.
TUC General Secretary Frances O’Grady said:
Our amazing key workers put their lives on the line to get us through the pandemic.
“The very least they deserve is a decent pay rise.
“But after a decade of having their wages held down by ministers more pain is on the way.
“At a time when many key workers feel exhausted and burnout and – and when staff shortages are really hitting our public services – this is the last thing the country needs.”
New ONS labour market stats:
Public sector pay growth is currently the worst on record.
In Feb 2022, public sector pay was, in real terms, 4.2% lower than the same month in the previous year.
Three-month average is at -3.4%, also a record low. pic.twitter.com/HK4dJKUnFZ
— Alex Collinson (@Alex__Collinson) April 12, 2022
Rising long-term sickness pushes workers out of labour market
Covid-19 is driving more workers out of the jobs market, experts warn.
Today’s jobs report shows 487,000 more people are classed as economically inactive than before the pandemic. That lifted the economic inactivity rate to 21.4% from 20.2% back in February 2020, and pushed down the unemployment rate.
This trend is being driven by older workers, says Jake Finney, economist at PwC, with the 50-64 group accounting for more than half of this increase since the pandemic started.
This group is suffering from higher levels of long-term sickness, with long Covid expected to be the primary new cause for this increase.
We expect higher inactivity to become a permanent feature of the UK labour market, as around six in 10 of these older workers say they will not consider returning to work in the future.
Resolution Foundation agrees, saying ‘Covid retirees’ are leaving their jobs.
The UK jobs market continued to tighten in early 2022, with vacancies hitting a record high, unemployment falling to 3.8 per cent – matching its lowest level since December 1974 – and short-to-medium-term unemployment falling to a record low.
But the overall size of the labour market remains smaller than it was pre-pandemic. Economic inactivity increased again to 21.4 per cent, suggesting that more Covid retirees are leaving the labour market.
This chart shows the rise in long-term sickness (the lime-green columns).
Stephen Evans, chief executive of Learning and Work Institute, says some people are leaving to care for others, as well as retiring or being ill themselves.
We continue to see people falling out of the labour market altogether, especially carers, retired people and long term sick.
Employers are crying out for staff, yet there are 1.25 million fewer people in the labour market than if pre-pandemic trends had continued. The Government must act swiftly to support people who are being hit the hardest, so we need a new Plan for Jobs, Growth and Living Standards.”
Political reaction
Minister for Employment, Mims Davies MP, points out that the unemployment rate has fallen to its joint-lowest level since the 1970s:
“With the unemployment rate returning to the lowest we have seen in nearly 50 years, it is clear our Plan for Jobs has worked – protecting livelihoods and businesses throughout the pandemic.
“Behind these ONS figures we know this is a difficult time for many workers and families. We’re doing everything we can to help, with our Way to Work scheme which is supporting people coming through the doors of our Jobcentres to move into better paid, higher skilled work. As well as increasing the National Living and Minimum Wage all backed up by over £22bn of targeted investment.”
But, Pat McFadden MP, Labour’s shadow chief secretary to the Treasury, highlights that last month’s spring statement failed to give as much support as hoped for strugging households.
“Today’s figures show that Conservative choices are leaving real wages squeezed and people worse off.
“At a time like this, Rishi Sunak could have chosen a one-off windfall tax on huge oil and gas company profits to cut household energy bills by up to £600.
“Instead, he’s decided to make Britain the only major economy to land working people with higher taxes in the midst of a cost of living crisis.”
Capital Economics: Labour demand softening, and wage squeeze will worsen
There are some signs of softening in demand for labour in today’s jobs report, warns Ruth Gregory of Capital Economics:
Labour demand was a bit weaker than we expected at the start of the year. Admittedly, LFS employment still increased by 10,000 in the three months to February (consensus forecast: 53,000) up from -13,000 in January. But the single month data showed that in February itself employment fell by 89,000.
In the three months to February, the unemployment rate fell from 3.9% to the rate of 3.8% seen before the pandemic. That further fall reflected a rise in inactivity of 76,000 in the three months to February, driven by more people saying they were retired, looking after family/home or long-term sick.
March’s claimant count and HMRC PAYE employee data were also both a bit softer than in recent months, perhaps as the war in Ukraine and higher inflation began to weigh on domestic activity. But the number of people claiming benefits still fell by 46,900, pushing the claimant count rate down from 4.4% to 4.3%, and the number of employees still rose by 35,000.
What’s more, the mix of decent demand for workers and a diminished supply of workers pushed up the number of vacancies to a new record high of 1.288 million in three months to February, and maintained the upward pressure on wage growth.
Gregory also warns that real wages could fall by 3.2% by April, from the 1% fall in December-February, as rising energy bills drive inflation over 8%.
Ben Harrison, director of the Work Foundation think tank, says today’s jobs report shows the need for more government help for struggling households, especially those relying on universal credit.
“Today’s statistics shows a mixed picture for the UK’s labour market recovery with employment stationery at 75.5% and unemployment dropping to 3.8%. However, the vacancy rate remains high at 1.3 million, and economic inactivity continues to rise to 21.4%.
“Crucially, workers and job seekers are being hit by the largest fall in living standards on record as inflation outpaces wage growth. Many are struggling to make ends meet as regular pay growth is at 4% (excluding bonuses) but inflation continues to rise, with the Bank of England predicting inflation will reach 8% in Spring and could rise further later in the year.
“The Chancellor’s Spring Statement failed to provide economic security to the most vulnerable in society, including those in low paying and insecure employment. Universal Credit beneficiaries saw their benefits uprated by just 3.1% in April, lagging behind inflation. The Chancellor must return to despatch box and, at a minimum, raise Universal Credit in line with predicted inflation to provide security to those at the sharp end of the cost of living emergency.”
Median pay in the finance and insurance sector grew by an inflation-beating 19.7% in the year to March, the ONS’s experimental data shows.
That reflects the jump in banker bonuses, after business boomed in 2021.
But pay lagged badly in the arts and entertainment sector, up just 1.6% over the last year.
Although there are over half a million more UK workers on company payrolls than before the pandemic, total employment is still 558,000 lower than in February 2020 (due to the drop in self-employment).
ONS: Basic pay ‘falling noticeably in real terms’
Basic pay is now falling “noticeably in real terms,” says Darren Morgan, director of economic statistics at the Office for National Statistics.
Here’s his summary on the jobs report:
“Overall, employment in December-February was little changed on the previous three months, and so is still below its pre-pandemic level.
“While unemployment has fallen again, we are still seeing rising numbers of people disengaging from the labour market, and as they aren’t working or looking for work, are not counted as unemployed.
“Early estimates suggest there was only a small increase in the number of employees on payroll in March, while job vacancies, although again at a record high, rose at their slowest for nearly a year.
“While strong bonuses continue to mitigate the effects of rising prices on people’s total earnings, basic pay is now falling noticeably in real terms.”
Experimental data from the ONS today also suggest that median monthly pay increased by 6.0% per year in March.
That suggests that firms have been raising wages to attract and retain staff, as workers are hit by rising prices.
But it lags behind February’s CPI inflation rate of 6.2%, which is expected to rise to 6.7% for March (we get that data tomorrow).
Regular real pay falls
Today’s jobs report shows that the UK’s wage squeeze continues, with basis pay failing to keep up with rising prices.
Regular pay, which excludes bonuses, only rose 4.0% over the last 12 months. That means real regular pay packets shrank by 1.0% once you adjust for inflation, as the cost of living crunch deepens.
Total pay, including bonuses, rose by 5.4% in the 12 months to February. That means total pay was 0.4% higher than a year ago.
The ONS says:
Strong bonus payments over the past six months have kept recent real total pay growth positive.
Introduction: UK unemployment rate drops to 3.8%
Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.
The UK’s unemployment rate has dropped further below its pre-pandemic levels as employers struggle to hire staff, and more people drop out of the labour force.
And Britain’s wage squeeze continued, with regular pay dropping by 1% over the last year after adjusting for inflation.
The UK jobless rate slipped to 3.8% in the three months to February, the latest labour force survey released this morning shows. That’s the lowest rate since October-December 2019, just before Covid-19 hit the economy, with the unemployment total down 86,000 to 1.296m.
Employment rose by 10,000 during the quarter, with 32,485 people now in work. That left the UK employment rate flat at 75.5%, still 1.1 percentage points lower than before the coronavirus pandemic.
Instead, the economic inactivity rate increased by 0.2 percentage points to 21.4% in December 2021 to February 2022. That’s because 76,000 more people became economically inactive in the quarter, taking the total to 8.857 million.
This increase was driven by those who are economically inactive because they are looking after family or home, retired, or long-term sick, the ONS explains.
Companies did add more staff, with 35,000 more people in payrolled employment in March than in February.
But while the number of full-time employees increased during the latest three-month period, this was offset by a decrease in part-time employees, as this chart shows:
Job vacancies hit a new record over the quarter, jumping to 1,288,000.
But the rate of growth in vacancies continued to slow down. There were 50,200 new openings added in January to March 2022 compared with the previous quarter, the slowest rise in almost a year.
The largest increase was in human health and social work, which increased by 13,100 to a new record of 215,500 vacancies.
More details to follow….
Also coming up today
US inflation may hit a fresh 40-year high today, with March’s consumer price index data forecast to jump to 8.4% from February’s 7.9%.
That would be the fastest pace since 1981, and probably spur the Federal Reserve to raise US interest rates aggressively over the coming months. Economists now expect half-point hikes in both May and June.
We also get the latest economic confidence index for Germany from the ZEW institute, which will show the impact of the Ukraine war on investors.
European stock markets are set to open lower, having dropped around 0.6% yesterday.
The agenda
- 7am BST: UK labour market report
- 10am BST: ZEW survey of German economic confidence in April
- 11am BST: NFIB index of US business optimism index
- 1.30pm BST: US inflation report for March
