Unemployment rise on a scale not seen since the recession

Today’s employment figures from the Office for National Statistics are very disappointing. The ILO unemployment level reached 2,502,000 – given that it stayed under the 2½ million mark throughout the recession and only blipped over that level once (in February) this is a bleak moment.

The unemployment rate rose from 7.7 to 7.9 per cent, the highest since March. The size of the increase since last month – 54,000 – is worrying. It is always important not to get too excited about one month’s figures, which could be a blip, but this increase is on the scale we saw during the recession. See Figure 1 below.

The employment figures are equally grotty, down 64,000 from last month, with the employment rate coming down from 70.8 to 70.6 per cent. This isn’t going to improve soon, as the number of vacancies fell again, to 457,000 – more than a quarter below the 650–700,000 that was normal before the recession. There are now 5.5 unemployed people for each job vacancy, up from 5.3 last month.

These figures had been holding up reasonably well, making today’s results even more disappointing. However, as we pointed out last month, the employment figures have been held up by part-time and temporary employment (and, to a smaller extent, self-employment).

What is new this month is that all forms of employment fell, except temporary jobs. See Table 1 below.

The public sector employment figures for the third quarter of this year, also released today, are not as up-to-date, but they do allow us to draw a more detailed picture of what is going on.

These figures give us some idea of what lies ahead – remember, the cuts haven’t really bitten yet and the Office for Budget Responsibility has brought down its forecast for the number of public sector jobs that are going to be lost by 2015.

Even so, public sector employment fell 33,000 in the third quarter and was 77,000 lower than in the third quarter of 2009. Over half the jobs lost in the last 12 months – 41,000 – have been in local government. Even the NHS, which has been sheltered from job losses up to now, has 2,000 fewer employers than it did a year ago.

Today’s figures show compensating employment growth in the private sector in the past quarter. Even after a year of recovery, private sector employment growth has only been 296,000 – just 0.5 per cent. This is a bit of a puzzle; a lot of other indicators have been showing the private sector doing quite well.

The Index of Manufacturing results were healthy, Purchasing Managers Indices have been reasonably good (and the Index for manufacturing was exceptional) and Manpower’s employment prospects survey was quite cheerful. One strong possibility is that we are seeing the downside of the labour hoarding that kept unemployment down during the worst of the recession; as a result employers have got enough workers to cope with likely increases in demand.

The fact that temporary employment is still growing is a likely clue to another explanation – businesses are not confident that the recovery is going to go on growing next year and don’t want to commit to new permanent employees. Those business organisations that lobbied for cuts are going to get what they wished for and it looks as if they people they represent are nervous about the implications.