Unemployment falls and employment rises

The strange course of unemployment continues with a rise in employment and fall in unemployment.

A rule of thumb is that there has to be around 1% growth in the economy to maintain the level of employment. This is because productivity improvements account for about 1% of growth.

The economy is not growing by anywhere near 1% and so the question has to be asked where are the jobs coming from. Sadly the data does not help us much and more work will have to be done here.

A good sign is that full-time jobs grew strongly. Sometimes the growth in jobs is part time and so the benefits are not as great as they seem. On the down side there was a rise in unemployment for the 18 to 24 year old group.

The BBC report the figures here

Unemployment down - at least in some ways

The debate on whether the recovery is going to be sustained will go on for a long time. Yesterday there was some good news on unemployment, although not consistently, and a warning from the Bank of England that the recovery will be slower than they previously expected.

The unemployment figures on the ILO measure fell by 49,000, largely due to a fall in youth unemployment. This really is good news as it means that the jobs market at the bottom end may be recruiting again. If school and university leavers had to endure another year of poor recruitment then then problems of long term, but young unemployed would present a massive policy problem for a decade at least.

Unusually the claimant count measure of unemployment rose. This difference is unusual because it is harder to get Job Seekers Allowance than it is to say you are unemployed according to the ILO definition. However we should wait for more data before reading too much into this.

Meanwhile the Bank of England said that the growth of the economy will be much slower than they thought in their last report, just three months ago. They now think the economy will return to 2008 levels of output in 2015 and not 2013. That is really quite a big difference.

The bank expects recovery to be uneven and does not rule out future declines in output in some quarters. The Euro area recovery is key. If Europe does not recover, and today it was announced that the Euro area slipped back into recession, then Britain will suffer too.

The BBC review the unemployment figures and comment of future prospects here

Inflation makes a surprise upward move

Lots of people are expressing their surprise at the rise in inflation to 2.7% (from 2.2% last month).  I'm not sure we really should be that surprised or that worried.

Inflation is the CONTINUOUS RISE in the general price level, reducing the purchasing power of real incomes. This rise is due to three main factors:

1. A rise in university tuition fees.
2. A rise in food prices due to the poor weather
3. A rise in energy bills

The Bank of England is supposed to keep inflation at 2%, but are allowed a 1% margin before they have to apologise. Should they really be concerned with this rise?

Well 2.2% was a 34 month low for inflation and so things seemed to be coming back under control, so this will be a blow to the men from Threadneedle Street. But the first two factors that caused inflation must be seen as 'one-off' influences. Tuition fees will not rise as much next year (from £3k to £9k this year) and it is unlikely that the awful weather of this year will be repeated next year.

So both the first two influences will drop out of the index next year. As for energy bills this market is known to be volatile and so there is little that can really be read into the price rise in terms of future inflation.

Also inflation is really concerning when it affects everybody. Tuition fees affect only a small proportion of the population, but the current massive rise makes the index jump significantly despite the small weight it is given in the basket.

So the Bank of England will almost certainly carry on looking at underlying inflation when setting interest rates and not the headline figure. Overall demand remains weak and while there are encouraging signs of recovery it is unlikely that interest rates will rise until well into next year even so.

The Daily Telegraph has a good explanation of inflation trends here

End of recesion or just heading for VW?

People often talk about the shape of a recession. The 'best' is V shaped - a short and sharp drop in GDP with a rapid recovery. U shaped is second best, still a strong recovery. The dreaded L shaped is the one to avoid and the reason why the policy response was so robust in 2008/9.

The UK has now officially reached the end of the W shaped - double dip - recession. Feared for so long and lengthened by the one-off impact of the Jubilee. Officially the UK grew by 1% in the quarter July to September, the fastest growth for five years.

Actually there were special considerations for this growth spurt, mainly the Olympics and the 'catch-up' from the previous quarter, so don't get too excited yet.

The headline figure is, as always, hiding a lot of detail. Look at the BBC economy page for that. It should be noted that the construction sector really is the problem area at present.

Construction continues to shrink and is making a really big impact on the figures. We should be worried about this. Not only does construction employ a lot of people and use lots of locally produced resources, but it is also a 'leading sector' in recoveries. We would expect construction to turn up before we saw a sustained rise in Real GDP.

The other point that might be worth noting is that the economy shrank by 6.4% in the first 'dip' and so far only half of that has been recovered even counting the last quarters growth.

Below is an article by The Guardian's Larry Elliott. You could not find a more miserable and biased economic commentator and he puts the latest recovery in the worst light he can. I'm surprised he wasn't the first to name the next stage as the triple dip or VW shaped recession. Glad I got in first!

Elliott's article is here

Inflation falls, but not for long?

The CPI and RPI fell by 0.3% last month. That is good news for the MPC and keeping to the inflation target and is the lowest rate on CPI since November 2009.

The cause of the fall in inflation illustrates that the figure is a moving average. A year ago gas and electricity prices rose significantly, but this year they did not. Of course there were other price rises but not as much as a year ago.

The importance of the September inflation figure is that it many benefits are increased in line with it. So its important for next years Government spending and the fall in inflation is good news for George Osborne.

The BBC covers the story and shows both the influences on the current inflation rate and reviews the benefits that are affected. There is also a section on why lower inflation is good for some people and firms.

The BBC story is here

Just because it has not changed does not mean its not significant

Today both the European Central Bank (ECB) and Bank of England decided to leave interest rates unchanged. For the UK it means interest rates have been at an all time low of 0.5% since March 2009.

This lack of change is deceptive. The low interest rates reflect concerns over the very low levels of demand in the economy and the expansionary monetary policy which is trying to stimulate Aggregate Demand. So what is happening is an ongoing active monetary policy.

But rates are pretty much as low as they can go (although there are rumours of a fall to 0.25% next month) and additional help through more Quantitative Easing (printing money) may still be required to help the economy recover.

The decisions to be made about monetary policy are not straightforward. The Bank of England must predict what inflation will be in two years time. As the linked article below shows it is not even clear what the July to September GDP figures will be, so predicting influences on inflation up to two years ahead is far from straightforward.

Monetary policy is a key policy weapon. Balancing the needs of growth (which needs low interest rates) and inflation, which is still above target, is a continuing headache.

The BBC explain some of the difficulties here

The problem of measuring

Deps have already encountered the issue of measuring GDP. There are plenty of reasons to suppose it is not an exact science.

Today the GDP figures for the April - June period (the second Quarter) were revised for a second time. It was good news as the fall in GDP was less than previously reported meaning the recession is not as bad as was thought.

The article explains some reasons why the figures reported originally were wrong

The BBC explain the change here

Inflation moderates, but head and tail winds continue

Inflation, as measured by the CPI, fell to 2.5% last month, that's down from 2.6%. This is still above the target rate of 2%, but it means inflation is going in the right direction.

There are always competing forces on the inflation rate. Some prices are rising and pushing the index up, others are falling and putting downward pressure on inflation. (Known as headwinds and tailwinds since a speech by the Governor of the Bank of England.)

Presently it is believed that inflation will fall towards target, despite factors such as higher food prices, because of weak demand in the economy generally. It is always difficult to be exact.

The BBC cover the figures here.

Look at the economy tracker for the data and maybe look at the personal inflation calculator

The unemployment puzzle

The economy is supposed to be in recession. The relationship we expect between GDP and Unemployment is that as GDP falls unemployment rises. But it has fallen.

To make it even more strange the number in work rose by a staggering 236,000 in three months. There are now 29,600,000 people employed in the UK.

Of course there are other factors to consider. Only 100,000 of the new employees were working full time for example.

Also the long term unemployed, those unemployed for more than a year, rose again.  This is worrying because some people seem to becoming detached from the workforce.

The figures need to be treated carefully. What was the Olympics influence? Will it be reversed in the next figures> But the most important question - is there really a recession if unemployment is falling and employment is rising?

The BBC cover the figures here

Click through to the BBC economy page for more data

When is a double dip not a double dip?

The Office for National Statistics (ONS) reported that GDP fell for the second successive quarter (January to March) and so the press have heralded a recession. The much feared 'double dip'.

What are the implications of this? The most important is the impact on confidence. Consumer and business confidence is incredibly low and this will do it no good at all. We can expect people to save more and firms to hold back on investment. This is going to reduce the rise in AD over the coming months and that will hamper recovery.

An important question about the data has to be asked however. The definition of a recession as 'two quarters of falling GDP' is not a technical one. It was coined by the semi-technical press and has now passed into the literature as if it is true. Actually it is at best a guide in order to point out that a single quarter of falling GDP is not a trend. So is this definition accurate?

Actually a better definition of a recession is six months of continuously falling GDP. That is GDP falls in each month of the six. The problem of ONS data is that it is based on calender quarters, January to March, April to June etc. But this means it is quite possible for two bad months, say December and January, to make GDP appear to fall in two quarters, while in fact there was growth in four and the current trend is still for growth.

In this case it is not at all clear that there is a recession, and it is not even certain that the Jan to March figure won't be revised back to very low growth. In addition a recession usually is accompanied by rising unemployment, and yet the latest figures show falling unemployment.

What is clear is that the news alone is potentially damaging, especially as the idiot Balls will cynically exploit figures he knows to be exceptionally dodgy and encourage the very behaviour that will further damage the recovery.

The BBC page shows the news in context here

Unemployment, a ray of hope or not?

Unemployment rose to 8.4% (2.67 million) last month on the LFS measure. The claimant count rose to 1.61 million.

There is no doubt that rising unemployment is bad news. The cause is, however, largely due to public sector job losses rather than cyclical unemployment which had been driving the figures higher since 2008.

The loss of public sector jobs has had the surprising effect of raising female employment. The state sector employs more women than men and the loss of public sector jobs means that the number of women unemployed has risen sharply and increased as a proportion of the total.

The BBC article below points out some significant points in the figures and also graphs them. You should visit the BBC economy page here and look at their map of unemployment too.

Is this the start of the 'flattening out' of unemployment? Will the private sector at last start driving a recovery. All these and more questions to be answered in a future episode.

The BBC report the figures here