UK Unemployment Data Comes in Better than Expected
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The UK unemployment figure for May came in better than expected, with the ONS reporting 125K jobs had been lost in the three months to May against market expectations for a figure of 234K to be reported.
The ONS reported the unemployment rate stood at 3.9% in May, better than expectations for 4.2% to be reported. This makes for an unchanged unemployment rate between April and May.
The claimant count - those seeking out of work benefits - meanwhile fell by 28.1K in June, against expectations for an increase of 250K. To put this in perspective, the numbers seeking unemployment benefits rose a staggering 566.4K in May, hinting the worst in unemployment could now be in the rear view mirror provided there is not an avalanche of redundancies when the government's furlough scheme ends in October.
The ONS reports that early indicators for June 2020 suggest that the number of employees in the UK on payrolls is down around 650,000 compared with March 2020. The largest falls were seen at the start of the pandemic and while the number of payroll employees is still falling the decline is slowing.
There are still a large number of people temporarily away from work, including furloughed workers, although this was seen falling through May.
"The monthly data paints a more hopeful picture with very early signs of recovery. Actual hours worked on a weekly basis showed signs of increasing in May, while the decline in vacancies and the claimant count saw signs of tailing off in June," says Jing Teow, senior economist at PwC. "This suggests that the reopening of the economy has had a positive impact."
New analysis from the ONS shows meanwhile that there were around half a million people away from work because of the pandemic and receiving no pay.
Kallum Pickering, Senior Economist at Berenberg warns of a risk the data is distorting the true scale of the challenges facing the labour market, saying that while data for May shows the unemployment rate remained unchanged at 3.9% relative to April even though economic output was roughly a quarter below potential.
"The problem is that in the UK, unlike in the US, furloughed workers receiving support via the government’s CJRS (Coronavirus Jobs Retention Scheme) are classed as employed. This distorts the true picture a lot," says Pickering. Regardless of the grey areas in the data, Pickering does acknowledge that the data include some small signs of hope.
Pay fell for most measures in May 2020, declining more in industries where furloughing was most prominent, many of these being the lowest-paying industries, in particular accommodation and food service activities.
Average earnings, with bonuses included, fell 0.3%, but this was less than the -0.4% markets were expecting.
PwC's Teow says that for the early signs of improvement to be sustained, businesses will need to reopen and sufficient consumer demand will be required to sustain that level of activity.
The Chancellor’s summer statement last week provides support for the sectors that need it the most with a VAT cut aimed at the hospitality industry being a standout policy announcement.
The ONS meanwhile released an experimental vacancy data set that showed the number of jobs advertised increased by 5.4% month-on-month in June.
"With luck, the ongoing re-opening of the UK and corresponding improvement in economic activity may soon start to show up in the labour market data. Hours worked and vacancies will begin to turn up soon if the economy remains on the path to recovery. As for the headline unemployment and employment data, they may remain unreliable until the CJRS comes to an end in October – at which point the estimates may deteriorate materially if many workers suddenly suffer layoffs," says Pickering.
