Labour market has run out of steam, says EY ITEM Club

15 May 2013

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

  • The labour market has run out of steam and today’s figures are more consistent with the wider economy
  • Labour hoarding suggests firms are unlikely to need to hire as much as the economy recovers
  • But despite the weaker headline numbers, the release still contains some signs of underlying strength

“These figures confirm that the labour market is running out of steam, with employment falling in the three months to March and unemployment increasing over the same period. This picture is more consistent with the fragile economic environment and will probably continue over the coming months.

“Firms have been hoarding labour in recent years and as a result will not initially need to hire as output recovers. Therefore, although growth should pick up this year, we expect there to be some payback in the form of weaker job creation.

“However, the detail of today’s figures contains some encouraging signs, providing reassurance that the payback will not be too intense. The increase in vacancies, hours and full-time employment suggest that the labour market still has some underlying momentum.

“But there appears to be no respite on the earnings front. Pay growth on the regular pay measure has fallen further to 0.8%, now lagging about 2 percentage points behind inflation. Consumer spending had been starting to recover, but this renewed squeeze on spending power will make it harder to maintain the momentum.”