1. Labour market conditions remain strong
Labour market conditions are unshaken in the first quarter of 2017:
The number of unemployed continued to fall, dropping by 53,000 on the last quarter of 2016
The number of employed continued to rise, increasing by 122,000 compared to the last quarter of 2016
The unemployment rate is at its lowest level since 1975, ticking down to 4.6% in the three months to March from 4.7% in the previous three months.
The employment rate reached a new high of 74.8% in the three months to March
2. Wage growth continue to disappoint
This has been a somewhat familiar picture in recent months. As the unemployment rate continues to fall, wage growth weakened significantly in the first quarter. In the three months to March, growth in average weekly earnings for the economy as a whole decelerated to 2.4% down from 2.6% in the three months to December. Although the fading growth in bonus pay contributed to the slowdown –it came in at 4.5% in March from 4.9% in December, the weakness is mainly attributed to the decelerating growth in regular pay which fell to 2.1% in March from 2.6% in December.
3. Growth in real earnings turns negative in March
With inflation surging to 2.3% in March, growth in real earnings turned negative in March for the first time since CPI inflation started to fall in August 2014. The single month growth rate in total pay came in at -0.1% down from 0.5% in February.
Looking forward, growth in real earnings is likely to continue in negative territory as inflation edged higher to 2.7% in the year to April.
4. Manufacturers continue to offer higher pay
The weakening pace of wage growth masks some divergence between different sectors of the economy. The slowdown in average weekly earnings is most apparent in the services and construction industries, where growth in regular pay fell to 2.0% and 1.7% respectively in the three months to March from 2.5% and 4.3% in previous quarter. By contrast, growth in regular pay across manufacturing ticked up at the start of the year, jumping to 2.5% in the first quarter from 1.7% in previous quarter.
5. EEF data confirm the momentum in pay growth across manufacturing
EEF Pay Bulletin released today confirm the upward trend in pay settlement levels across manufacturing. The three-month average settlement to the end of April came in at 2.1%, rising above the 2% mark for the first time since November 2015. This was up from 1.8% in the previous three month period to the end of March.
6. Brighter conditions led manufacturers to offer higher pay increases
Business conditions continued to surprise on the upside in the manufacturing sector. Alongside the resilience of the UK order pipeline, the sector enjoys tailwinds from a stronger global economy and an upturn in investment worldwide, while the weak pound is providing a boost to UK exporters selling abroad.
In the meantime, margin pressures from the sterling depreciation and the surge in commodity prices are somewhat easing. The year-on-year growth rate in input prices fell to 16.6% in April from 19% in the previous month, while output prices edged higher as manufacturers continue to pass through the surge in costs to their customers.
As a result, manufacturers are also offering higher pay increases than they did earlier this year. This month saw the share of deals within the 2-3% range increasing to four in ten settlements, the highest in our survey since November 2015. The share of pay deals at or below 2% fell accordingly to almost half of settlements agreed between February and April.
7. Caution is not completely shrugged off
The share of settlements at the higher end of the pay spectrum suggest that manufacturers remain cautious when it comes to pay rises. Most of deals are still running below the 3% mark and the average settlement is still below CPI inflation.
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