The start of 2016 has been marked by investor jitters which have seen global stock markets fall on worries over the slowing of the Chinese economy and fears that the collapsing oil price could have a knock-on effect on global commodity prices and general demand - although this seems overplayed, frankly. Consequently, it is a pleasure to have something more upbeat to report in the shape of the real economy, in the UK, at any rate.
Employment is a lagging indicator of the economic cycle in that jobs only start to be lost once things have turned black and are only recreated when demand and the order books indicate that more help is needed. Consequently, the fact that UK unemployment has decreased to a level prior to the Global Financial Crisis can only be good news.
According to the Office for National Statistics (ONS), unemployment in the 3 months to November 2015 stood at 5.1%, its best performance (if you will) for ten years. During this period, 99000 people found jobs, leaving the official count of those unemployed and actively seeking work in the UK at 1.68 million. On the other side of the coin, the employment rate is now 74% of UK adults of working age. This level is the best participation rate since records began in 1971.
The rate of salary growth in the UK may be slowing; it came in at 2% rather than the 2.1% predicted by the Reuters survey. If bonuses are stripped from the data, average weekly earnings rose by 1.9%. The Governor of the Bank of England, Mark Carney, has suggested that interest rates may not rise until wage growth hits the 3% mark. Given that UK employment is nearing “full employment”, economic orthodoxy suggests that employers will need to improve terms and conditions to attract the best employees, pushing up wages, however, the relatively weak wage inflation shows that this is not yet happening. It has been suggested that this is because inflation is at very low levels, but it probably has more to do with perceived employee insecurity. Many workers will be fearful of holding out for a better deal when changing jobs until it becomes clearer that we have switched to an employee-driven state.