The labour market is the king of good news

Yesterday we were quite shocked about April’s bad manufacturing performance with the weakest single month performance since October 2012 (-1.4%). The same can also be said about international trade which has seen the deficit widening once again.

Moreover, the first and second GDP releases pencilled in only a very small economic expansion (+0.1% in the quarter) with subdued private consumption and negative business investment growth.

Luckily enough, the labour market has been a constant source of good news in the recent period.

Employment, inactivity, and unemployment rate at their best

Compared to a year ago there are:

• 440,000 more people in work

• 115,000 fewer unemployed

• 200,000 fewer economic inactive individuals

What more can be asked?

In terms of rates, employment and inactivity rates are the best since comparable records began in 1971 (75.6% and 21% respectively). The unemployment rate is at 4.2%, the joint lowest since 1975.

Manufacturing is leading in terms of job creation

Looking at the job creation breakdown for the past year, we can appreciate how manufacturing has been the second best sector in the year to March. Manufacturing, which is the 5^th largest sectorial employer, enjoyed a solid growth in 2017 and was able to create 46,000 jobs. Only the human health sector (2^nd top sectorial employer in the UK) was able to do more creating 73,000 jobs.

On the other side of the table, it was a tough year for construction which had lost 17,000 jobs after peaking in March 2017 which had the highest workforce figure since the financial crisis.

Even worse was the performance of the largest UK sectorial employer, wholesale & retail. This has lost 30,000 jobs in the last four quarters and confirms once more how sectors relying on consumer demand had faced a difficult year.

Looking at a longer time span, the wholesale and retail sector was also the worst performer when the last three years are considered, losing 64,000 jobs after the peak registered in March 2015.

The top performer, in this case, was the transport & storage sector which created a whopping 241,000 jobs in the last three years also thanks to the increase importance of online retail sales.

Average earnings growing but at a slower pace

As I mentioned, on Thursday we will publish our results for our May Pay Bulletin. In our last publication our figures for manufacturing showed a 2.6% increase in the three months to April. The result is in line with today’s ONS release which sees manufacturing regular pay growing by 2.7%. Regular pay in the whole economy was instead at 2.8%.

These official results show a slowdown in pay growth, in particular when total pay (including bonuses) is considered. It appears that the peak in the whole economy was reached in the three months to February - up 2.8% versus the 2.5% growth reported today.

Another piece of the puzzle for MPC’s members

This result will surely be considered by MPC’s members who, more than once, underlined how they are concerned about possible domestic generated inflationary pressures related to wage growth.

After a good retail sales result in April, the last two releases (labour market and industrial production) gave a vote against a rate hike in August and tomorrow it will be the time for a new important chapter with the prices release.

Stay tuned!