Last week I looked at how the forecasts for CPI at the start of 2012 compared with the reality. As we saw, in the second half of the year CPI was higher than expected.
But while CPI - along with a series of other indicators - was worse than expected in 2012, there was one area that proved consistently better than expected. That was the labour market. In our January 2012 forecasts we said we thought the ILO unemployment rate was likely to be 8.5% in the fourth quarter.
Today's data for the three months to November shows that the unemployment rate was actually 7.7%. The data also shows that manufacturing employment ticked up in the first three quarters of 2012. However, across the economy there was very little – if any – output growth last year, which means that productivity has slumped.
So why did companies increase employment if output was so weak? In December I posted a blog looking at some of the reasons firms might be taking on new employees, despite weak growth. These included: manufacturers taking on apprentices to prepare for future growth and companies choosing to hire people as an alternative to making capital investments. There is also the possibility that figures were flattered by companies making agency workers permanent employees.
What does this mean for 2013? Most forecasters do not expect the labour market to improve in the same way. In fact, the median of forecasts compiled by the treasury suggest unemplyment will be higher at the end of 2013 than it was at the end of 2012. Our own forecasts suggest that ILO unemployment will tick up in 2013, and average about 8.4% over the year, resulting from continued sluggish economic growth combined with a significant margin of spare capacity.
However, today's labour market statistics do suggest there may still be potential for improvement in the labour market, for example the number of vacancies in the economy has now risen for nine consecutive months and official statistics show there were 33,000 more vacancies advertised in the three months to December than in the same period a year earlier. This takes the total number of vacancies in the economy to 494,000, the highest level since December 2008.