2 days ago
Reeves's jobs bloodbath is only just beginning
Has the UK jobs market taken a turn for the worse? This is the burning question in the wake of employment data released this week. Provisional estimates for May showed payroll jobs falling 109,000 on the month and down 274,000 from a year ago.
It's easy to be bamboozled by the jobs data, as there are different measures and they don't all move together. One measure, the Labour Force Survey, has suffered in recent years from a slump in the number of survey participants, so much so even the Bank of England has voiced concern about being unable to follow what's going on with employment.
The survey problems are being addressed and the good news is that the Office for National Statistics also uses various sources to compile a measure of workforce jobs, plus there is also reliable data from tax sources.
Overall, looking at all of these, the key message is that the UK employment market is slowing down. This is both because of government policy decisions and increased uncertainty about the economic outlook.
This deterioration is from a strong position because UK employment has been very high. In March, there were 37.1m people in workforce jobs. This was higher than in December and 304,000 more than a year ago.
So, when government ministers this week said that there were more jobs, it was these figures that there were likely referring to.
They include 6.15m in the public sector. Out of 20 industry sectors, 12 saw higher jobs in the first quarter, with health and social care up 76,000 jobs. On the face of it, this looks good, but it is only part of the picture.
The tax data, which is often seen as reliable as it is not based on surveys, has shown a fall in the number of employees over the last seven months.
Although this week's provisional figure of a fall in payrolls for May could be revised, it follows a fall of 55,000 in April and coincides with the largest quarterly fall in vacancies for two years.
These fell by 63,000 in the three months to May to 736,000. Also, the unemployment rate rose from 4.4pc to 4.6pc in the three months to May to above its pre-pandemic rate.
Three government policies are weighing on the jobs market.
First, is the rise in the national insurance rate announced in the autumn Budget and which came into effect in April. This is a tax on jobs and already is having an impact. Its biggest effect will be seen in high-employment, low-wage sectors such as hospitality.
Then there are two policies that look set to weigh heavily on small and medium-sized enterprises, who account for 99.8pc of all firms and employ 16.6m people. These are the new employment rights legislation, which adds much uncertainty. For example, a right to flexible working where practical becomes the default.
Then there is the increase in the national minimum wage, where an unintended consequence is the distortion it is having on wage differentials in small firms, as well as adding to employment costs.
Critical, too, to the jobs outlook is the direction of travel for the economy. The immediate worry is that in the wake of the Chancellor's spending review, we are heading for a repeat of last summer. Then a fear that the Government's first Budget would be tough led to a hit confidence amid talk of a black hole and the talking down of the economy.
Now, the Chancellor is more likely to be upbeat but the fear, nonetheless, will be that this autumn's Budget may deliver higher taxes and increased borrowing to fund spending plans. This could weigh on sentiment, denting firms' hiring plans.
In the past, the labour market was a lagging indicator, responding with a lag to developments across the economy.
Now, because of its flexibility, the jobs market is a coincident indicator, reacting quickly and often driving what is going on across the economy. When the economy turns down, firms can swiftly cut vacancies and not replace roles.
There is, though, a positive from the labour market: namely wages are rising by more than inflation. Earnings are rising by 5.1pc in the private sector and by 5.6pc in the public sector. That's an overall annual increase of 5.2pc. Current inflation is 3.5pc. While this has allowed consumer confidence to rise from its recent lows, the disappointing latest retail sales figures and an increase in the savings ratio suggests that even those with the ability to spend are not confident about doing so.
The worry has to be that firms, too, will become wary, as is evident in recent surveys. In this case, the slowdown in the labour market that is now evident will continue and more jobs will be shed.
Dr Gerard Lyons is chief economist at Netwealth
