All is well in the U.K. as far as jobs are concerned… at least, that’s what the latest employment reports tell us! Jobless claims fell by 5,900 in July, beating the consensus forecast of an increase of 6,000. Cool beans!
What’s most awesome about this figure is that it could’ve actually been much lower.
According to the Office for National Statistics, if we had excluded cuts to lone-parent benefits (which added more women to the jobless count), jobless claims would’ve actually fallen by a much larger amount last month.
Meanwhile, the unemployment rate unexpectedly dropped to 8.0% to 8.1% in June, capping off a strong second quarter. As a matter of fact, 201,000 jobs were added in the three-month period that ended in June. Effectively, it took employment to 29.48 million, which marks the largest quarterly increase since 2010 and the highest level of employment since 2008!
On the other hand, growth in wages rose only 1.6% on average in the second quarter from the same period last year. Not only is this rate of increase below inflation (currently running at 2.6%), but it’s also slightly weaker than the 1.7% uptick that many had predicted.
Still, overall, the job market put up impressive numbers in July and the second quarter, right? Definitely! But should we expect hiring to continue picking up at this pace? Maybe not. According to many economists, these gains might not be sustainable.
For the most part, analysts give the London 2012 Olympic Games much of the credit for the positive figures for July. It has been estimated that the event generated 100,000 temporary jobs for the U.K.
On top of that, skeptics point out that the rise in private sector jobs were mostly because of the pickup in self-employment and part-time jobs.
Looking deeper into the statistics, we see that 1 in every 4 private sector jobs created were by self-employed individuals. Meanwhile, part-time employment rose to its record high of 8.07 million, adding 71,000 people for Q2 2012. 16,000 of those part-time workers are people who couldn’t find full-time jobs.
What’s interesting though is that the British economy still generated jobs in the second quarter when the GDP was said to have contracted by 0.7%.
Our BOE chaps are still scratching their heads to find an explanation for the labor market’s resilience amid slower economic growth. In fact, BOE Deputy Governor Charlie Bean describes the phenomenon as a “genuine economic puzzle.”
Some analysts think that the labor market ‘s reaction to the economic downturn might be lagging as companies tend to hoard skilled workers in fear that they may not be able to hire good people should the economic weakness prove to be short-lived.
Meanwhile, a few market junkies say that what we’re seeing could be nothing more than just inaccurate data. They think that perhaps the economy is much stronger than what the official numbers suggest, or that maybe the labor market isn’t as resilient as everyone thinks.
Finally, there’s also the assumption that productivity has been falling. If so, this would mean that companies hired more people to square off the drop in output.
The BOE has yet to make an official and convincing explanation for the phenomenon though. And until that happens, I have a feeling that market participants will remain skeptical of the resilience of the British labor market. It is expected that unemployment will rise and peak at 2.80 million in 2013 and the unemployment rate will tap 8.7%.
But if you ask me, I think we should just enjoy the positive employment figures from the U.K. Looking at the bigger picture, despite pay still coming in below inflation and part-time jobs accounting for most of the rise in private sector jobs, it’s a pretty stellar report. And besides, let us not forget that the U.K’s unemployment rate is still lower than the euro zone at 11.2% and the U.S. at 8.3%.