Discussion in 'Economics' started by morganist, Aug 12, 2009.
uk unemployment highest since 1995.
Green shots, U.K. edition
UK labour statistics released on Wednesday pointed to the highest unemployment rate in 14 years. As the FT reported:
Unemployment rose to its highest level for 14 years in June, but the number of new jobless benefit claimants remained much lower than earlier this year. The number of unemployed people in the three months to June rose by 220,000 to reach 2.4m, compared with 2.2m in the three months to May but less than the 2.5m predicted by economists.
But, the sweetener supposedly comes in the claimant count. As the FT notes:
â¦ the number of people claiming jobless benefits for the first time rose by just 24,900 in July â more than the revised 21,500 increase in June but much less than its peak rise of 136,600 in February.
And here is the nicely abating and contradictory chart that follows:
Among those noting the âhuge discrepancyâ between the claimant count data and the ILO unemployment measure, is Howard Archer, chief UK and European economist at IHS Global Insight. As he stresses (his emphasis):
The ILO data are ghastly showing unemployment surging by 220,000 in the three months to June, taking the number of jobless up to a 14-year high of 2.435 million and the unemployment rate up to a 13-year high of 7.8%. In addition, the number employed fell by a record 271,000 in the three months to June. The only tiny crumb of comfort that can be gained is that unemployment had risen by an even larger 281,000 in the three months to May.
In marked contrast, the claimant count data suggest that the rise in unemployment has tailed off recently. The number of jobless on this measure rose by 24,900 in July, which the second smallest drop (after 21,500 in June) since May 2008. This compares to a record rise of 136,600 in February.
In fact, the discrepancy is such that the UK Works and Pensions Secretary, Yvette Cooper, even launched an inquiry into the matter this week.
So which to believe?
Archer, himself, errs on the side of the ILO unemployement measure specifically due to the âstudentâ effect. As he explains:
We suspect that the ILO measure is painting a truer picture of the current state of the labour market than the much narrower claimant count measure. In particular, over the summer months, there are likely to be a lot of students who have just left college or school and cannot get a job, thereby going straight into unemployment. These do not show up on the claimant count data as they are not eligible for benefits. Indeed, youth unemployment is already a major source of concern. The ILO data show that the employment rate of people aged 16-17 dropped to just 28.6% in April-June from 34.0% a year earlier, while the rate for people aged 18-24 dropped to 59.8% from 64.1%
Worryingly, though, it seems the BoE may be erring on the side of the claimant figures if todayâs inflation report is anything to go by. As the Bank states:
The more timely claimant count measure rose by 167,000 in the three months to June, a smaller rise than in the previous three months. So, consistent with employment intentions surveys, the claimant count measure suggests that the pace of increase in unemployment may be easing.
Yet, as Archer points out, there is another factor âother than students â to consider: The fact that a substantial number of people who have lost their jobs are not claiming benefits for various reasons, like relying on partnerâs income, redundancy payments or their savings.
Adding to those BoE deflationary fears, meanwhile, could also be Wednesdayâs pay statistics. These, as Archer notes, remain under significant downward pressure:
Underlying annual average earnings growth (excluding bonuses) was limited to just 2.5% in the three months to June, which was the lowest rate since the series began in 2001. Annual headline average earnings growth was also 2.5% in the three months to June and rose by just 1.8% in June itself as it was limited by generally lower bonus payments (this series has been very volatile on a month-to-month basis recently due to the bonus effect).
Earnings growth is expected to remain under downward pressure from elevated and rising unemployment, companies ongoing need to contain costs in a still highly difficult environment and negative retail price inflation (many pay increases are still linked to this measure of inflation). Indeed, a substantial number of companies have imposed wage freezes or even pay cuts.
Separate names with a comma.