Early data shows limited deterioration in UK labour market in March
Data from HMRC and ONS indicate that the UK labour market took a modest hit in March as economic activity became increasingly affected by coronavirus, reports business finance specialist EY.
In reality the reported deterioration was markedly less than expected, given the reports of many workers signing on to receive benefits.
EY says employment was up 178,000 in the three months to February to reach a new high of 33.073 million, with the employment rate rising to a record 76.6 per cent and vacancies rose for a third month running.
This was lifted by record high employment levels for women. Despite the strong rise in employment, unemployment rose 58,000, which caused the rate to rise to four per cent. This reflected the fact that the inactivity rate fell to a low of 20.2 per cent.
There were some signs of labour market weakening in the ILO data with the number of job vacancies falling back to 795,000 in the three months to March (the lowest since late-2017) from 817,000 in the three months to February.
The March labour market data being markedly better than expected does not dilute the importance of the Government’s Coronavirus Job Retention Scheme and its implementation, EY says.
The company says it is difficult to judge just how many jobs will be lost over the coming weeks. Clearly, much will depend as to whether the vast majority of furloughed workers ultimately return to their jobs, the firm adds.
Its expectation is that the ILO unemployment rate will rise above 6.5 per cent over the summer before starting to fall back. This is based on its assumption that the economy will contract around 13 per cent quarter-on-quarter in the second quarter and by 6.8 per cent over 2020 as a whole.
It is critical both for the economy’s near-term recovery prospects – once the coronavirus impact starts to wane – and for limiting the damage to it further out that as many jobs can be saved as possible.
Howard Archer, chief economic advisor to the EY ITEM Club, said: “The labour market deteriorated markedly less than had been expected in March according to experimental HMRC and ONS data. It was certainly less than had been expected given the reports of many workers signing on for benefits.
“Early estimates on employment using Pay as You Earn Real Time Information shows that the number of paid employees in March fell just 0.06 per cent compared to February and remained at 29.1 million. The year-on-year increase slowed to 0.8 per cent in March from 1.1 per cent in February.
“Additionally, the number of workers claiming benefits rose a modest 12.100. Importantly, though, the claims data was based on the situation at March 12 and there looks to have been a substantial pick-up since then especially when the lockdown was imposed on 23 March.
“The ILO data shows that the labour market was still holding up well in February before coronavirus started to become a factor. This was despite the fact that GDP was only up 0.1 per cent on a three-month/three-month basis in February.
“Several surveys early on in the year had indicated that companies had become more prepared to employ in the aftermath of December’s election due to reduced uncertainties.
“The number employed rose 172,000 in the three months to February to reach a new record of 33.073 million. This followed similar gains of 184,000 in the three months to January, 180,000 in the three months to December and 208,000 in the three months to November.
“The employment rate rose to a record high of 76.6 per cent in the three months to February from 76.5 per cent in the three months to January.
“The number of unemployed rose 58,000 in the three months to February to be at 1.364 million; this took the unemployment rate up to four per cent from 3.9 per cent in the three months to January. The number of unemployed had previously risen 63,000 in the three months to January to be at 1.343 million.
“The fact that unemployment rose 58,000 in the three months to February, even though there had been a 178,000 increase in employment, reflected the fact that the inactivity rate fell to a record low of 20.2 per cent.
“There were some signs of labour market weakening in the ILO data with the number of job vacancies falling back to 795,000 in the three months to March (the lowest since late-2017) from 817,000 in the three months to February.
“Earnings will obviously be affected as a result of the coronavirus impact on the labour market, notwithstanding the Government’s support measures. It is notable that the IHS Markit Household Finance survey reported that UK households reported a decrease in earnings from employment in April.
“According to the latest survey data, incomes fell at a substantial rate that outpaced all previous reductions seen since the survey began in early 2009 by a wide margin.
“Earnings growth had already come well off the highs seen in mid-2019. Annual average earnings growth amounted to 2.7 per cent in the three months to February; this was the lowest level since the three months to August 2018 and down from 3.1 per cent in the three months to January. It has come down from a peak of 3.9 per cent in the three months July 2009, which had been an 11-year high.
“Annual earnings growth amounted to 2.5 per cent in February itself, following 3.1 per cent in January and 2.8 per cent in December. It peaked at four per cent in May 2019.
“Annual regular earnings growth (which strips out bonus payments which can be erratic and distort the overall figures) slowed to 2.9 per cent in the three months to February from 3.1 per cent in the three months to January, taking it to the slowest rate since the three months to August 2018; it has come down from an 11-year high of 3.9 per cent in both the three months to July and June.
“Regular earnings growth was 2.8 per cent in February itself, as it had been in January; this is the lowest since June 2018 and down from 3.2 per cent in December. It had peaked at four per cent in June 2019.
“ONS data shows that real earnings growth slowed to 1.2 per cent in the three months to February from 1.5 per cent in the three months to January and a peak of two per cent in the three months to June.
“Regular real earnings growth slowed to 1.3 per cent in the three months to February from 1.5 per cent in the three months to January, 1.7 per cent in the three months to December and a peak of two per cent in the three months to June.
“The REC March report on jobs showed a marked slowing in pay growth during March as the jobs market came under substantial pressure. Starting pay for permanent placements rose at the weakest rate since July 2016 while temporary wage inflation was the slowest for just over seven years.”