The UK seems to be exiting its furlough scheme pretty strongly

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by Shaun Richards

Today we have our first official glimpse of the state of play in the UK labour market post the furlough scheme something that has long been penciled into our diary.

The number of job vacancies in August to October 2021 continued to rise to a new record of 1,172,000, an increase of 388,000 from the pre-coronavirus (COVID-19) pandemic January to March 2020 level, with 15 of the 18 industry sectors showing record highs.

As you can see things start pretty well in that vacancies have risen suggesting that there was not something of a cliff edge with workers immediately laid off and rushing for new jobs. The rate of growth did slow but seeing as we are at record levels as the economy tries to digest all the pandemic inspired changes that should be no great surprise.

On the quarter, the rate of growth in vacancies continued to slow down; in August to October 2021 vacancies rose 222,000 (23.4%), down from 288,000 (43.4%) last quarter, and the largest quarterly increase was seen in “wholesale and retail trade; repair of motor vehicles and motorcycles” up 29,600 (24.8%).

We can dig deeper as there are some experimental October numbers.

The total volume of online job adverts on 5 November 2021 increased by 4% from the previous week, to 147% of its February 2020 average level (Adzuna)……

That weekly update compares to this at the end of September.

The total volume of online job adverts grew by 3% from the previous week, to 139% of its February 2020 average level;

So there looks to have been a rise rather than the feared falls. Indeed the Resolution Foundation has done its own survey to investigate the post furlough world.

Our survey suggests that 88 per cent of respondents who were furloughed in September were in work in October, with 8.5 per cent being inactive and just 3.4 per cent being unemployed. If this is representative of the population, this implies around 136,000 of the 1.1 million on furlough in September were not working in October.

We would have happily settled for those sort of numbers so let us hope they are representative. Whilst 136,000 is a lot assuming that everyone would remain employed was at best a pipe dream and with the level of vacancies more than a few should find work this month. It seems that one reason for this is that the bouyant vacancu situation allowed many to change jobs if they needed to.

Part of the reason why a relatively high fraction of those furloughed in September were in work in October is that some had already found another job: estimates from the four surveys we have fielded during the pandemic  show that around 15 per cent of workers on furlough since June 2021 were furloughed in one job and working in another.

So the UK job market again showed flexibility and this was confirmed by what happened to those partially furloughed.

with partially furloughed workers – who comprised 44 per cent of the total on furlough at the end of September – no more likely than those employed normally in September to have lost their job in October.

We have incomplete information but things look to have gone well and we have a success especially if we add in the employment news for October.

Our most timely estimate of payrolled employees indicate that in October 2021 there were 29.3 million employees, up 160,000 on the revised September 2021.

Also the vacancies are being filled very quickly.

These vacancies are being filled at record rates, with the average time to fill a vacancy equalling its pre-crisis record of 1.5 months.

Official Forecasts

These look to be wrong yet again with the Office for Budget Responsibility as ever living in an alternative universe.

We now expect the unemployment rate to peak at 5.2 per cent in the fourth quarter of 2021, some 1.3 percentage points lower than we did in March (equivalent to 460,000 fewer people unemployed);

Whereas this morning we were told this for the quarter ending in September.

The unemployment rate decreased 0.5 percentage points on the quarter to 4.3% while the inactivity rate remained unchanged at 21.1%.

So we would now expect even the October number to be quite a bit lower than their estimate made only 3 weeks ago. Presumably then the numbers would fall meaning that my first rule of OBR Club ( that it is always wrong) strikes again! Even worse for them the individual unemployment rate for September was 3.9%.

Hours Worked

Regular readers will be aware that I think this has been one of our better signals through the pandemic as it has been less distorted than others.

Total actual weekly hours worked in the UK increased by 25.2 million hours on the quarter, to 1.03 billion hours in July to September 2021 (Figure 6). This reflects the further relaxing of coronavirus lockdown measures. However, this is still 25.6 million below pre-pandemic levels (December 2019 to February 2020).

There is a bit of an each way swing here because whilst we continue to improve the change on what we were told last month was a mere 5 million hours which suggests a slowing. However we are still in the quarterly series which includes the July pingdemic which no doubt depressed the numbers so we will have to wait and see until we get numbers outside of it.

Wages

These are a more troubled area and I do not just mean the problems with the numbers themselves. Sadly they are badly designed ( this is a generic issue as the “international standards” have led most up the garden path) and have misled many. At least since my official complaint they make an effort to adjust the numbers.

Latest figures show that for July to September 2021, the regular earnings growth rate was 4.9%. This growth rate is likely to be slightly inflated given some base effect is still present. As such, using the same two methods we previously have, we estimate that the regular earnings growth rate could be as low as 3.4%.

I have always preferred the numbers including bonuses as many rely on them so that gets us to around 4%. Although even with that there is a catch.

The lower proportion of workers on furlough has contributed towards the strong growth when comparing pay in September 2021 with September 2020.

So maybe we are back to 3.4% again! But this is higher than what others think. For example here is the CIPD.

Continuing the trend from previous reports, pay settlement expectations in the private sector have risen from 2.2% to 2.5%.

This makes a real difference to real wages because if the CIPD is right that is below inflation and will look worse tomorrow when we get higher inflation figures. I am afraid that the official release gives us Fake News and is actively misleading.

In real terms (adjusted for inflation), total and regular pay are now growing at a faster rate than inflation, at 3.1% for total pay and 2.2% for regular pay. Average real pay growth rates are also affected by these temporary factors in the same way as nominal pay and should be interpreted with caution.

The second sentence is not strong enough.

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Comment

We find ourselves in what is familiar territory for the UK labour market. Ever since the credit crunch we have seen strong employment numbers but much weaker wages ones. Or if you prefer strong quantity numbers with weaker quality ones. We have repeated that it would appear with a Covid-19 pandemic nuance. That is on the information so far the Furlough Scheme looks to have been a success.

So we can have a job but the pay especially when we allow for inflation is disappointing and may well be falling in real terms.

If we now look at the Bank of England it told us this yesterday.

Andrew Bailey hints that main hurdle to UK rate rise has been cleared ( @fteconomics )

That is even more true after this morning’s release the problem is that he cried wolf only last month.

Bailey said a lack of official data about what had happened to around 1 million workers who were still on furlough when the government’s jobs protection programme ended on Sept. 30 had made him want to wait rather than raise rates this month. ( Reuters )

 

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