UK labour market data confirm that we are in an economic depression

Today has brought news that adds to my contention that the UK is experiencing an economic depression right now. We have to look deeper than the conventional signals because tight now some of them are not working. For example the official unemployment definition set by the International Labor Organisation or ILO is missing the target by quite a lot. To use a football analogy if they took a shot at goal they not only miss it but they miss the stand as well. This is why.

Under this definition, employment includes both those who are in work during the reference period and those who are temporarily away from a job. The number of people who are estimated to be temporarily away from work includes furloughed workers, those on maternity or paternity leave and annual leave.

As we stand that covers approximately an extra 4 million people which is a huge number compared to what are being reported as unemployed as you can see below.

Estimates for June to August 2020 show an estimated 1.52 million people were unemployed, 209,000 more than a year earlier and 138,000 more than the previous quarter.

This can be misleading for the unwary and I note that the BBC Economics Editor Faisal Islam has failed to note this development.

Sharp spike up in unemployment rate to 4.5%, above 1.5 million, after revisions and the headline numbers finally catching up with grim reality. Suggests monthly number in August as furlough unwound around 5%.

If you actually think the UK unemployment rate is either 4.5% or 5% then I have a bridge to sell you. Poor old Faisal looks completely lost at sea.

Unemployment still low by historic (3 year high) and international standards – but on way up…

It is in reality as I shall explain high but recently has fallen so he is wrong in every respect.

Hours Worked

The actual signal of a depression in the UK labour market is provided here which looks through the issue of the furlough scheme muddying the waters. Let us start with the better part of it which shows a post lockdown ( which just in case we should now call Lockdown 1.0) improvement.

Between March to May 2020 and June to August 2020, total actual weekly hours worked in the UK saw a record increase of 20.0 million, or 2.3%, to 891.0 million hours. Average actual weekly hours worked saw a record increase of 0.7 hours on the quarter to 27.3 hours.

However the overall picture is of a 15% fall in hours worked. Because is we look back to this time last year ( June to August for this purpose) the number of hours worked was 1.049.2 million. Sadly we get little detail on what is the most significant number right now and the maths is mine. The bit below hides more than it reveals.

Although decreasing over the year, total hours worked had a record increase on the quarter, with the June to August period covering a time when a number of coronavirus lockdown measures were eased.

Redundancies

These provide another clear signal as we note this.

Redundancies increased in June to August 2020 by 113,000 on the year, and a record 114,000 on the quarter, to 227,000. The annual increase was the largest since April to June 2009, with the number of redundancies reaching its highest level since May to July 2009.

So in round terms the rate of redundancies has doubled. There is also a hint that things are also getting worse.

The redundancies estimates measure the number of people who were made redundant or who took voluntary redundancy in the three months before the Labour Force Survey interviews; it does not take into consideration planned redundancies.

Pay as You Earn ( PAYE)

The tax data gives us another insight.

Early estimates for September 2020 indicate that there were 28.3 million payrolled employees, a fall of 2.2% compared with the same period in the previous year and a decline of 629,000 people over the 12-month period. Compared with the previous month, the number of payrolled employees increased by 0.1% in September 2020 – equivalent to 20,000 people.

As you can see these numbers are much more timely than the other labour market data which only reach March. It also shows much more of a change than the unemployment numbers but is still undermined somewhat by the existence of the furlough scheme. There will be payrolled employees who are being subsidised by the furlough scheme until the end of October.

Wages

These are giving the same signal as we note this.

In June to August 2020, the rate of annual pay growth was unchanged for total pay but positive 0.8% for regular pay. The difference between the two measures is because of subdued bonuses, which fell by an average negative 15.3% (in nominal terms) in the three months June to August 2020.

So pay growth is no longer negative as we note an unsurprising divergence between regular pay and bonuses. This compares to where we were pre pandemic as shown below.

The rate of growth stood at 2.9% in December 2019 to February 2020 immediately prior to the coronavirus (COVID-19) pandemic,

We saw wages fall and now they are flatlining. This means that in real terms they are doing this according to the official release.

In real terms, total pay is growing at a slower rate than inflation, at negative 0.8%. Regular pay growth in real terms is now positive, at 0.1%.

So if we use a better inflation measure we see that real wages are falling by a bit more than 1% per annum. This means we are even further below the pre credit crunch peak as we note that this measure has experienced its own version of a Japanese style lost decade.

The aggregate numbers hide a few things as we note some substantial shifts within them.

The public sector saw the highest estimated growth, at 4.1% for regular pay. Negative growth was seen in the construction sector, estimated at negative 5.3%, the wholesaling, retailing, hotels and restaurants sector, estimated at negative 1.8%, and the manufacturing sector, estimated at negative 0.9%. This is, however, an improvement over the growth rates during May to July 2020.

We can learn more from the August data if we look at it as a single month. This is because wages rose from £531 per week to £550 meaning that they were 1.9% higher than a year before. A fair bit of this was the finance sector which saw weekly wages rise by £32 to £721. However there was also welcome news for construction up by £12 to £631 and the hospitality sector where they rose £8 to £364 per week.

Comment

Looking at properly today’s UK labour market release confirms the prognosis of the economic growth or GDP release from Friday. It is not that we lack some green shoots as the August wage data is one and this from the PAYE numbers adds to it albeit is too good to be true right now.

Early estimates for September 2020 indicate that median monthly pay increased to £1,905, an increase of 4.3% compared with the same period of the previous year.

But on the other side of the coin the annual fall in hours worked correlates with the decline in GDP we have seen pretty well. I hope that we can get through this more quickly than in the past but the reality is that these are falls of a size which indicate an economic depression. If reality is too much then you can take a Matrix style blue pill and follow the BBC reporting a 4.5% unemployment rate.

As a caveat all of these numbers are subject to wider margins of error right now. You may be surprised how few are surveyed for the main data source

One key data source for understanding the UK labour market is the Labour Force Survey (LFS), which usually covers around 35,000 households a quarter.

At the moment that will be less representative because in switching to a telephone based system they discovered a change that seems too big to be true.

Back in February around 67 per cent of households in their first interview in the LFS sample were owner occupiers and 32 per cent were renters. But in July this was around 77 per cent and 21 per cent respectively……… For tomorrow’s release we will therefore reweight the estimates so that the shares of owner occupiers and renters are the same as before the pandemic hit in March.

 

 

 

29 thoughts on “UK labour market data confirm that we are in an economic depression

  1. Hello Shaun,

    its going to get worse than that. why? well after 6 months a lot of the recently unemployed drop off the unemployment list.

    I should know (!)

    Forbin

    • Hi Forbin

      Firstly let me wish you luck. Next comes the issue of the end of this month when furlough ends. Although we now do have some replacement schemes they are not ( so far anyway) the same so even the Unemployment numbers should start to have some realism.

      There is any irony here as back in the day it was the Claimant Count which was considered to be of not much use in terms of telling us what was happening.

  2. I’m not classed as unemployed but thanks to the Covid absurdity i have had 6 days work in 7 months, with another few days coming up shortly.

    In Q1 of this year i got a US visa for adhoc work and a contract with a multinational a contract earning 4 figures a day in dollar terms inc equipment hire. (this all looks dead in the water)

    Well and truly shafted for a cold virus i’ve no chance of dying from.

    Then last week i put in an cash offer on a property but was outbid, presumably by an “investor” taking advantage of temporary tax breaks awarded to them.

    This lockdown needs to end imminently as there is barely any work out there, but instead the collection of incompetents and crooked scientists are ramping it up, as they will get paid millions in the coming years anyway.

    • The BBC are reporting, in order to prepare us for permanent house arrest, that a man in US has, supposedly, developed covid twice.

      I have pointed out the faults with the testing, but I might as well fart against thunder

      • strange but true , I’ve had Measles twice ( not supposed to happed btw )

        Scared the doctor no end (!!)

        There was also the case in Wuhan I beleive that “supposidly” a man had it twice in 28 days . They concluded he never actually recovered from the first bout. I would not be suprised if that was the case USA case.

        Yes the testing is flawed , fatally IMHO. There was that Reuters article about it. Didn’t even get a sniff from the BBC ……

        oh well

        Forbin

  3. No-one has ever yet explained to me why, if you’re at home doing nothing because you’re furloughed, you need more money to live on than if you’re unemployed, especially since you may have become unemployed last week, as a direct result of coronavirus measures.

    • To falsely represent the true number of unemployed. They will keep coming up with such schemes because they think we are all stupid.

    • The answer came to me last night.
      Many furloughed workers are on full pay, but even those on 80% wages may be much better off financially when things like taxation, work costs, travel/childcare etc. are considered.
      With fewer opportunities for leisure spending, much of this freebie cash will obviously go to paying down debt, with those most in trouble paying down most.
      Thus banks have even fewer bad loans.
      Furlough is another way to protect the banks, & the reason not to give that much extra to unemployed people, is that they are likely to have much less access to credit, so may waste it on decent food, heat & clothing.

    • “and there were only a few cases of high street lenders offering negative mortgages.”

      hmmm, can see the attraction , we don’t measure that type of inflation so ……

  4. The data released today raised a number of questions:

    Female unemployment 4% and male unemployment 4.9% !

    I would have expected more women employed in both retail and hospitality and higher unemployment rate which raises questions to which sectors are being hit and how it’s affecting both genders.

    There is no mention about bi-sexual and or bay workers in the data I thought the Gov would have been politically correct about all the data.😂

  5. Interest rates are NEVER going back to normal, if the Govt, can help it.
    It has used coronavirus to finally nail down the lid on them, by inveigling us all with Govt. debt incurred “due to coronavirus.”
    As I said back in March, & as many scientists have since come out & said, “Protect the vulnerable, the rest carry on.”
    It really was the only commonsense answer, & the only reason there can be for not following this obvious path, deliberate, planned, economic implosion.

    • I agree with what you say. Its the why I struggle with. I can think of many reasons but not one over-arching “plan”. Its deliberate but what drives this event chain?

      1) The carry-on the “money for nothing” outcomes we have all enjoyed for 20 years (BtL, Asset Valuations, German Automobiles, 2nd Homes).

      2) To keep the Govt Public Sector in its leading position, those value-added jobs, those quality jobs and all of those benefit packages (pensions).

      3) To direct the resources of the country from the centre, all contracts awarded without delay to well chosen suppliers, decision made on the hoof, close to the department ownership and agile to change them at will

      4) To ensure plebian compliance, from a position of desperation and zero choice, Govt can enjoy an un-challenged directive authority.

      5) A way to introduce a Financial reset, where weatlh is truly allocated and not earned. Monies will be destroyed in places they give agency and freedom whereas new money will be created in digital form and “awarded” for un-quesitoning duty and line towing to the central agenda.

      Whether it be furlough, or UBI, MMT will be the engine for “value creation”. Zombie organisations who promise loyalty will be rewarded with share buy backs and liquidity. Property portfolios will be protected, an MMT gushing hose will be used as liquid concrete in Commercial reals estate or underneath the piles of country residences.

      I just can’t decide which is the real reason. Can anyone help me?
      Paul C.

      • My thoughts as to motivation are that we did not nearly deal with the true destruction of the 2008 meltdown, because, had we, it is a serious possibility that tptb would have been overthrown, & that those responsible might have had a fate worse than jail.
        So it couldn’t happen then, & over the past decade or so, we have seen increasingly desperate measures to keep the plates spinning.
        We are now at a distance where the establishment feels that the economic implosion we have been avoiding, but not dealing with, can now happen without the blame being cast on them.
        The severity of lockdown seems to be proportionate to economic turmoil, with countries who have dealt with the hangover from 2008, or in certain cases other economic mismanagement, suspiciously suffering far worse covid numbers than others, leading to more hysterical reactions.
        It would be very interesting to have a REAL comparison of the numbers, infections, serious cases, mortalities, but that is not possible, because, & this is perverse, some countries seem to want to maximise the numbers of victims, as in the UK & others who want to minimise them, both cases to justify their reactions.

        There is also UN Agenda 2030, whose targets will not voluntarily be met by Western consumers, so we are to be given no choice; our consumption is too high and it must fall, whether we like it or not.

        • don’t be silly , there’s plenty of life in that old girl Titanic, we’re going to turn her around to have another go at that pesky iceburg ! dammed impertinace of the thing !

          Forbin

        • OK, so the reason is an acknowledgement that we are overdue a reset and they chose it now, to make it happen, to ensure its associated with the virus and not with Govt economic mismanagement. They only have to put up interest rates to end it all, arguably were the UK forced to do so, to rescue the currency in February 2021 then this playbook would fit….. I guess.

          What about when the citizens find out that the Virus was created as part of Agenda 2030? That China and USA collaborated to make this bio-weapon.Then the blame circles back to Govt. again. (however we never did find WMD in Iraq so maybe they will escape that furore)

          My strongest sense is not that we are having a calamity placed up on us for a “Healthy” re-basing but instead its part of conscious chain of events to re-position government with new financial control and citizen control via digitalisation and surveillance.

          Its a pity that true capitalism and a price on money has been abandoned. Anything is possible going forward. Paul

  6. Hello Shaun,

    I see some WAG has put forward the idea that the young can cash in their megre pension savings to go towards their first rabbit hutch , sorry , house.

    5% deposit mortgages are mooted for next year ( with 0% IR for the first 5 years? )

    so are we going back to 125% mortgage along with the grandfather ones ? ( your mortgage is passed onto your children – 75-100 year mortgage terms …… why not call that rent? )

    But it makes no difference if many are out of work ……

    So I guess soon there will be a bright spark who’ll suggest imputed wages for those out of work supported/backed by HMG so that Banks will lend on that “wage” ………… but you’d better be good , eh ?

    HMG can print it without cause for concern as it is asset backed by bricks and mortar……..

    Forbin

    • Hi Forbin

      Good point as that was doing the rounds yesterday based on this .

      I think I recall someone suggesting it around 3 or so years ago and it is as silly an idea now as it was then.In fact let me correct myself. As house prices have risen in the meantime relative to both wages and inflation it is an even sillier idea now.

  7. for those who are interested

    ONS data shows week 40 as 3% of all deaths having CV-19 mentioned on the death certificate( up from 2%) .

    of the CV-19 deaths 91% were over the age of 65.( up from 86% )

    I note that from the 2019 figures that ot looked like the flu season last year started in week 42…….

    Forbin

    • I have no figures to support this but a GP friend mentioned that there is very little flu around this season so far. My cousin ( who is a consultant in Nottingham ) says the same. lets hope it stays like that!

  8. Great blog as usual, Shaun.
    I notice that the share of discouraged workers in the labour force, which was 0.4% in the first three months of 2020, moved up to 0.5% in April, then to 0.7% in May, where it has stayed through July. The UK stats, unlike the US stats, don’t allow people over the average of 64 years old to be discouraged workers. The percentages only relate to people in the 16 to 64 age bracket.

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