Money
14 July 2010
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| CEBR |
Labour market data released by the Office for National Statistics this morning showed a decrease in claimant count unemployment of 20,800 in June from May. This equates to a 1.4% decline and is the fifth consecutive monthly reduction. Unemployment on the internationally comparable ILO measure fell by a similar amount with a reduction of 34,000 in the three months to May over the previous non]overlapping quarter, also a 1.4% reduction.
Employment data was also positive, with 160,000 additional individuals employed in the three months to May. This was an increase of 0.6%, the largest rise since August 2006. A large driver of this trend however wasa record 148,000 increase in the number of people employed on a part time basis. Clearly underemployment and spare capacity remain ingrained in the system. This helps to explain why average weekly earnings (including bonus payments) remained sluggish in May. Although these rose by 2.7% in the three months to May compared to the same period last year, they are down from 4.1% last month and 4.3% in March. The equivalent figure for the public sector was 3.2%, the lowest figure since June 2009.
Taken at face value it may appear that there has been a halt in the deterioration of the labour market, but ignoring the impending cut backs in the public sector would be languid. Like the Office of Budget Responsibility we see public sector employment falling by approximately 600,000 between 2012 to 2015. Some will find work in private sector firms, but uncertainty surrounds howmuch of the slack the private sector can pick up. Our view is that the private sector recovery will take place rather more slowly than the OBR predicts. Therefore expect unemployment to rise to nearly 9.0% in 2014, instead of just over 6.0% forecast by the OBR. With this additional slack, those lucky enough to have a job are on average only likely to see annual earnings growth of around 2.5%between now and 2012.