Record growth disappoints -but the job market offers hope Posted by David Smith at 09:00 AMCategory: My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt. We will look back on this time with wonderment. Economists who are young now will be telling their grandchildren about the time that there was a 15.5% rise in gross domestic product in a single quarter, admittedly preceded by a 19.8% drop in the previous three months. We will never see figures like that again. Explaining too that even a 15.5% quarterly rise in GDP – three times the previous record (recorded during the Barber boom of the early 1970s) - was disappointing, not least because growth faded over the course of the quarter, will add to the oddity of those recollections. From now on
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Record growth disappoints -but the job market offers hope
My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.
We will look back on this time with wonderment. Economists who are young now will be telling their grandchildren about the time that there was a 15.5% rise in gross domestic product in a single quarter, admittedly preceded by a 19.8% drop in the previous three months. We will never see figures like that again.
Explaining too that even a 15.5% quarterly rise in GDP – three times the previous record (recorded during the Barber boom of the early 1970s) - was disappointing, not least because growth faded over the course of the quarter, will add to the oddity of those recollections. From now on we will gradually move back to more normal numbers, beginning with a small fall in GDP during the current quarter.
A good September increase in monthly GDP would have raised the bar from which that fall occurs. But September saw a modest 1.1% rise, modest by current standards that is, despite a boost from the return of schools. I shall say it again, just to add to the anguish of parents who were tearing their hair out in the spring. Home tutoring by parents, like housework, does not contribute to GDP.
The UK’s economic performance, like its pandemic performance, compares badly with most other countries. UK GDP in the third quarter was down by 9.7% on pre pandemic levels. Some of that reflects the way public services are measures but the underperformance is across the board, including manufacturing and household spending.
There are ramifications in that but for now I want to focus on something more positive, Britain’s labour market. It may seem odd to do that after a week in which the official unemployment rate has risen to 4.8% (equivalent to 1.62m people), a quarterly record of 314,000 redundancies and a drop of nearly 800,000 in the number of workers on payrolls since March.
There are now, however, good reasons to think that the peak in unemployment will be lower than after post-1980 recessions, and below previously feared levels. Those post recession peaks, to remind you, were 11.9% in the 1980s, 10.7% in the 1990s, both equivalent to more than 3m people out of work, and 8.4% in the 2010s, after the financial crisis. The feared unemployment tsunami may not now occur, and not just because there is now more optimism about effective Covid-19 vaccines becoming available, following Pfizer’s announcement last week. There is a good chance that the unemployment peak this time will be around 7%, equivalent to 2.4m people.
Why? The UK has a flexible labour market. Some say that that flexibility works to the disadvantage of the low paid, and in some cases it does. Mainly, however, it delivers a better employment outcome than many other countries, including most countries in Europe. Eurozone unemployment, which peaked at more than 12% in the aftermath of the financial crisis, and the eurozone crisis, is already back up to 8.3% now.
I have written many times about the additional labour flexibility provided by EU migrant workers. They respond to labour demand. They did so during the financial crisis, when demand for workers in the UK fell. They have done so dramatically this year, during the coronavirus pandemic.
The figures are extraordinary. The number of non-UK born workers in this country fell by 717,000 between the first and third quarters of the year, from nearly 5.9m to below 5.2m. This, it can be noted, is similar to the drop in payroll employment over the period. The lion’s share of that drop is EU-born workers, down by 495,000.
Over the same period, strikingly, the number of UK born workers has risen by 231,000. A note of caution is in order, because people are recorded as being in work when they are in fact on furlough, but the contrast is remarkable.
For nationals, as opposed to where people were born, employment among non-UK nationals is down by 576,000, of which 493,000 is due to a fall among EU nationals. Measured employment among uiK nationals is up by 101,000.
There are other examples of the resilience of the job market. Online job vacancies from Adzuna, monitored by the Office for National Statistics (ONS), slipped back a little in the latest week because of the second lockdown but were still nearly double this year’s lows. The ONS’s own vacancies’ data showed a 146,000 rise during the August-October period. Another source, CV-Library, says that job postings in the first week of the current lockdown were almost 90% up on their late-March level.
It remains to be seen what happens to another aspect of labour market flexibility, growth in pay. It was negative in the spring but has picked up to an annual 1.3%, compared with nearly 3% at the start of the year. The pay figures are distorted by the furlough but modest pay growth, at best, is in prospect.
Alongside labour market flexibility, of course, has been the government’s extraordinary interventions. When Rishi Sunak announced the furlough scheme in March, we had never seen anything like it before. There is no doubt that it prevented an immediate and significant surge in unemployment, which would have put the current rate of 4.8% in the shade.
Whether he wanted to or not, the chancellor has returned to the original 80% scheme in the light of the new lockdown. The criticism of this was not of the decision to offer more help during the second wave but of the blanket and potentially very wasteful nature of that help. The Treasury, in a rush to respond, apparently put offering assistance to the hardest hit sectors only, most notably hospitality, in the “too difficult” box. I can understand the difficulty. Once you single out hospitality businesses, for example, how do you deal with suppliers to those firms.
Where there is clearly a need for further targeted help is for the young. Even if unemployment peaks at a low level, there will still be significant “scarring” as a result of young people experiencing unemployment and a lack of opportunity early in adult life. Employment among 18-24 year-olds fell by 6% or 200,000 between the first and third quarters. The unemployment rate in this age group is a high 13.6%, nearly three times the national average. That is where the government’s efforts should be directed.