Labour Market: The Brightest Spot In The Recovery
BMI View: The UK labour market has defied the odds over the last few years by adding over a million new jobs in the face of weak economic growth and cuts to the public sector workforce. Moreover, employment data have become more important as a gauge for the health of the economy and the trajectory of monetary policy. Whether or not the recovery in employment is matched with a resurgence in productivity will determine whether the current economic recovery is sustainable and if monetary policy can be normalised.
The UK labour market has been the most noticeable bright spot in an otherwise lethargic economy over the last few years, with over a million new jobs being created. The latest data further fuels the positive sentiment building around the broader economic recovery. Total job gains increased by a whopping 250,000 in the three months October, the second largest reading on record. In addition, the unemployment rate has edged down to 7.4% in October from 7.6% the previous month.
What really stands out is that the unemployment rate has gone down even when the total labour force has continued to increase. In other developed states labour forces have shrunk on the back of falling participation rates, which might lower the unemployment rate when it should be stable, or leave the unemployment rate stable when it should be rising. In other words, headline unemployment figures can be misleading if changes in the labour force are overlooked. In the case of the UK, the fall in the unemployment reflects a genuine improvement in the labour demand.
|Remarkably Strong Job Creation|
|UK - Change In Employment (3m/3m)|