Labour market figures are very encouraging and point to underlying strength, says ITEM Club

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Nida Ali, economic advisor to the EY ITEM Club, comments on today’s labour market figures:

  • Today's figures are very encouraging and point to underlying strength in the labour market
  • However the consistent decline in unemployment may be difficult to sustain, given that recent activity indicators have been sluggish
  • Although wage growth is very weak, easing inflation suggests that individuals' real incomes will stabilise in the second half of 2012 

“These figures are very encouraging and point to underlying strength in the labour market. Not only has the headline unemployment rate fallen, but figures for full-time employment and vacancies are much improved as well. Today's release further supports our view that upward revisions to the recent GDP data are on the cards.
 
“However looking ahead, it may be difficult to sustain the downward trend in unemployment. Recent activity indicators have been sluggish, implying that the private sector will find it increasingly difficult to create jobs. With public sector employment expected to keep falling, overall unemployment will probably nudge up in the coming months, peaking around mid-2013.
 
“Wage growth is still very soft and below the inflation rate which implies that individuals' real incomes are continuing to fall. However, even though we don't expect much of a pick-up in pay growth in the near future, the ongoing decline in the inflation rate should help to stabilise real incomes in the second half of the year.”