According to Gluskin Sheff economist David Rosenberg, recessions in the US “historically begin when the unemployment rate climbs 0.4 percentage points above its cycle low”. The UK single-month unemployment rate rose from a low of 3.7% in May to 4.1% in June, raising a recession warning flag.
The UK single-month rate is based on a small sample and is much more volatile than its US counterpart. A monthly rise of this size, however, is unusual: excluding the 2008-09 recession, an increase of 0.4 pp or more occurred in only 4% of months between July 1992 (the earliest available data point) and May 2019.
The ONS surveys largely the same group of individuals every three months, suggesting focusing on the three-month change in the single-month unemployment rate rather than the month-on-month change. The three-month increase was 0.3pp in June, the highest since 2015.
The suggestion of a trend reversal in unemployment is supported by an ongoing decline in the stock of job vacancies, which were down by 4.8% in July from six months earlier (three-month moving average). The six-month change is the most negative since the double-dip recession scare of 2011-12 – see first chart.
Other recent labour market developments have a recessionary flavour, including a fall in the employment shares of full-time workers and employees, a stagnation in total hours worked and a faster drop in temporary working. Part-time employees and the “self-employed” account for all of the rise in total employment over the last six months.
The consensus has played down the 0.2% Q2 GDP fall as payback for Q1 strength due to Brexit stockpiling. Two-quarter growth, however, declined to 0.3%, a post-GFC low, and corporate money trends are signalling a further slide to zero or negative during H2 – second chart. A recession remains the baseline scenario here regardless of Brexit developments.
