Unemployment: what the experts say

Fears that a rise in unemployment during August signals a sharp downturn in the UK economy was tempered by a jump in the number of people taking jobs over the three months to July. Economists agreed though that the increasing reliance on part-time jobs to boost employment rates showed employers were nervous about the coming year. Chris Williamson, chief economist at Markit Overall, the labour market is showing signs of weakening, however, as the discrepancy can be largely explained by the fact that the increase in employment was driven by part-time workers. Employers remain reluctant to take on permanent full-time staff, a trend which business surveys suggest is gathering momentum as we move into the autumn. The rate of growth of people placed into permanent jobs by recruitment consultancies has dropped sharply since the spring, while the PMI surveys show jobs being cut at a rate not seen since December. These latter survey data are particularly concerning as they relate to private sector employment, and therefore suggest that private sector hiring is unlikely to offset the job cuts that are looming as part of the public sector austerity measures. "With PMI surveys showing a further slowing in business activity levels at the start of the third quarter, and public sector spending cuts biting, it looks highly likely that we will see further disappointing official labour market reports in coming months. Jeremy Cook, chief economist at World First It's a fairly grubby and mixed picture of the UK employment market. While claims have risen for the first time in seven months we also saw 121,000 jobs created in the past month, the most since June 2007. Obviously an increase in claimants is not ideal and will increase pressure on the coalition as we move into 'cutting season'. Howard Archer, chief European and UK economist at IHS Global Insight The labour market data are both disappointing and worrying overall, fuelling fears that the improvement in the labour market is coming to an end as companies' fears mount over the strength and sustainability of the upturn. This is even before public sector job cutting really gets underway. In particular, the number of claimant count unemployment edged up by 2,300 in August following a drop of just 1,000 in July. This compares to declines around 30,000 in May and April. Furthermore, there was a much reduced drop of 8,000 in the three months to July on the ILO measure. However, there is some positive news as employment spiked up by 286,000 in the three months to July. Continuing recent trends, this was once again led by a 166,000 jump in part-time employment, which indicates that many companies are reluctant to add full-time workers amid serious concerns over the sustainability and longer-term strength of the recovery. Significantly, part-time workers now account for 27.2% of total employment, which is up from 26.7% at the end of 2009, 25.7% at the end of 2008 and 25.4% at mid-2008. However, full-time employment did rise at an increased rate of 121,000. We see unemployment on the ILO measure peaking around 2.85 million in the first half of 2012, with the unemployment rate reaching 9.0%. Meanwhile, although wage growth picked up modestly in July, it remained modest compared to past norms and it still seems highly unlikely that wage pressures will pose an inflationary threat anytime soon, which supports the case for the Bank of England to keep interest rates down at 0.50% for many months to come. Alan Clarke, UK economist, BNP Paribas The August labour report was mixed in the extreme. On the positive side, the ILO measure of employment surged by 286k in the latest 3 month period - the biggest rise in the history of the series. That was about 100k higher than we expected. Everything else in the report was more downbeat. In particular the ILO measure of unemployment fell by just 8k in the last 3 months, weaker than expected. The claimant count measure of unemployment rose for the first time since last October, up by 2.3k. That continued the deteriorating trend of late. As recently as May claimant count unemployment was falling by around 30k per month. That pace of decline steadily slowed and is now showing renewed increases. Finally wage inflation ticked up on both measures. Nonetheless, at sub-2% y/y the pace is extremely depressed and well below the level consistent with the inflation target. The interpretation of the report is open to opinion. In our view the increase in employment looks odd in the context of the slowing growth prospects. Meanwhile the worsening in unemployment is consistent with what we know is happening to growth. Hence we very much doubt the buoyancy of the employment data will last much longer. Engineering Employers' Federation senior economist Jeegar Kakkad The labour market remains a mixed picture. While on the one hand more people are finding jobs, on the other the high level of temporary workers highlights how cautious companies remain about the momentum behind the recovery. The Bank of England must also be concerned about the continued rise in long-term unemployment which is likely to limit spare capacity in the economy if these workers no longer have the skills that companies need. David Kern, chief economist at the British Chambers of Commerce While there were some positive developments, particularly a big rise in employment and a fall in inactivity, the number of people working part time because they could not find a full time job, has increased further. There is no room for complacency and the labour market must prepare for the impact on jobs that will result from the government's deficit cutting measures. With this in mind, we reiterate our forecast that UK unemployment is likely to peak at around 2.65 million in the first half of 2012. The government must reinforce its efforts to help the private sector create more jobs, in order to offset the unavoidable cutbacks that are likely to occur in the public sector. Reducing the significant regulatory burden facing small and medium-sized businesses must be a key element in any successful economic strategy aimed at encouraging growth and job creation. TUC general secretary Brendan Barber These are mixed figures. There is some good news, but those figures that look most clearly at what is now happening are more disappointing. The worry must be that we are at a turning point as spending cuts hit business and consumer confidence. "What is clear is that the economy is still extremely fragile. With more than one in six young people without work, the best the government can expect is a largely jobless recovery. At worst the economy could go into reverse, as the OECD now recognise. The unemployment deniers in the government need to accept their responsibility for blighting Britain's young. Brian Johnson, an insolvency practitioner at HW Fisher & Company, chartered accountants The Government is banking on the private sector to drive the economy forward, specifically the UK's SMEs. But a significant percentage of SMEs either lack the confidence to invest or are unable to secure the necessary funding from the banks or other institutions. Without money you cannot grow and companies that do not grow do not take on more staff. At the same time, the banks are increasingly withdrawing their support from companies they feel are non-viable, which only adds to the UK's unemployment woes. We are seeing the formation of a split economy, where larger companies are awash with cash and SMEs, the engine of the UK economy, are genuinely struggling. Chris Grayling, employment minister Today's jump in employment, driven by the private sector, is good news but it doesn't disguise the fact that the system the government inherited is failing to get people on welfare into these jobs. It is neither fair for the nearly five million people on benefits, nor the taxpayer who supports them. That's why we are pressing ahead with retesting everyone claiming incapacity benefits and introducing our new Work Programme, which will give people the tailored support they need to move them into sustained work.