Earnings exceed inflation for second consecutive month

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More good news from the labour market in October as unemployment continues to fall and earnings outstripped inflation for a second month in a row. Crucially, improvements in the labour market persist despite a backdrop of deteriorating global economic conditions.

In the three months to October, unemployment fell to 6.0% from 6.2% in the previous three months and from 7.4% a year earlier, but the really good news came from earnings data. Between October 2013 and October 2014, total average earnings increased by 1.8% while the CPI rate only rose by 1.3%. A combination of falling unemployment and disinflation in the economy should sustain increases in real income going forward.

Furthermore, key indicators of spare capacity in the labour market show a further absorption of slack over the past year. The proportion of part-time workers who could not find a full-time job has fallen by 10.1% over the year while actual weekly hours worked have increased by 2.3% in the same period.


Is it all good news?

The data shows some slowing in the pace of the reduction in unemployment. On a quarterly basis, the decline in unemployment for August to October was the slowest this year. Nevertheless, this is to be expected given the rapid narrowing of slack in the preceding quarters and signs of slowing growth for the second half of the year.

A bigger cause for concern is the persistence of youth unemployment. The youth unemployment rate remained unchanged from the previous quarter and at 16.6%, is still some way off its pre-downturn trough of 13.8%.


What about manufacturing?

Employment in the manufacturing sector continued to march on - increasing for the 7th consecutive quarter in September. Workforce jobs increased by 0.5% on quarter and 1.6% from September last year.  This tallies well with our latest Business Trends survey that shows strong recruitment throughout 2014 as manufacturers take on more staff to capitalise on strengthening domestic economic conditions.

Earnings growth in the sector is also holding up with total pay exceeding the inflation rate for every month in 2014 apart from April and August.  On the downside, looking at single month compared to the same month a year ago data, whole economy total pay growth surpassed pay in manufacturing for the first time this year in October.




Still, this is due to very strong growth in manufacturing pay for the first half of the year, which implies less need for catch up in the final months of 2014. In fact, for the less volatile three month average, July 2012 was the last time that earnings growth was higher for the whole economy than for the manufacturing sector.



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