UK unemployment plunge reflects dismal productivity performance
Simon Ward
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Today’s strong labour market numbers support the forecast here that the unemployment rate will fall beneath the MPC’s “threshold” by mid-2014 – see previous post. They also imply that productivity performance remains disappointingly weak.
The labour force survey (LFS) measure of the unemployment rate fell to 7.6% (7.61% before rounding) in the three months to September from 7.8% (7.79%) in the prior three months. LFS unemployment needs to decline by 20,000 per month for the rate to breach 7.0% by mid-2014. This looks eminently achievable: the more timely claimant-count measure fell by an average 43,000 per month in the three months to October.
LFS employment has been growing solidly but, in addition, there has been a rise in average weekly hours, for both full- and part-time workers. Aggregate hours worked, therefore, rose by 1.0% in the September quarter from the prior three months. With GDP currently estimated to have increased by 0.8% last quarter, the suggestion is that output per hour is continuing to slip – at odds with the MPC’s view that productivity performance would recover as the economy strengthened.
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