Weak earnings growth remains the trade-off for higher employment levels - ITEM Club
Andrew Goodwin, senior economic advisor to the EY ITEM Club, comments on today’s labour market figures:
- Is the labour market starting to run out of steam?
- We expect unemployment to nudge upwards in the early months of 2013
- Weak earnings growth remains the trade-off for higher employment
“These figures again look impressive in the context of the poor growth performance. Even allowing for the discontinuities in the data, the private sector has created more than 600,000 jobs over the past year, while youth unemployment – one of the biggest problems of the past few years – is falling back rapidly. These are phenomenal achievements given that the economy has flat-lined over the last year.
“But at the same time there are increasing signs that this remarkable labour market performance is beginning to run out of steam, with employment growth continuing to slow across all measures.
“Given that the recovery is likely to remain weak in the short-term, we would expect to see this trend continue over the coming months. In a climate of such uncertainty, firms have preferred to expand headcount rather than increase investment, but there is a limit to how far this can go if demand continues to grow slowly. We would expect to see unemployment begin to edge upwards in the early part of next year.
“Weak earnings growth remains the trade-off for the relative strength of the employment numbers and, at just 1.7% on the regular pay measure, earnings growth remains a full percentage point behind inflation. This represents a much smaller gap than this time last year and, with employment having risen so strongly, this has been enough to kick start a consumer recovery. But it is going to be difficult to generate much momentum behind this consumer recovery until earnings start growing again in real terms.”