The labour market statistics were released on Wednesday. At first glance, the trends are in the right direction. The number of unemployed people fell by 26,000 over the three months to May to a level of 2.45 million. The unemployment rate was 7.7%. The number of unemployed for over one year fell by 37,000 to a level of 807,000. The economy continues to recover albeit more slowly.
The claimant count on the other hand increased by 24.5 thousand to a level of 1.52 million. In fact the claimant count has been increasing for the past four months. How can the unemployment figures be falling as the claimant count is rising? It is becoming increasingly difficult to read the data.
The official explanation is the two datasets measure different things at different times. In addition, the Government is moving thousands of single mothers off income support onto unemployment benefit. The switch is causing the number of people on the dole to rise dramatically.
The claimant count remains a valuable indicator of the health of the economy. It is a coincident indicator. It used to be considered a lagging indicator, as layoffs reacted to a downturn in the economy. In fact chart 2 suggests it has become more of a leading indicator giving a clear indication of where the economy is heading. Claimant count lead the down turn in the GDP figures in 2008 and foretold of the recovery in 2009. It also warned of the slow down in the second half of 2010.
The message from the latest data is very worrying, growth year on year could be at best flat or even negative in the second quarter. The latest NIESR estimate suggests growth on the second quarter is just 0.8% year on year. This looks to be too optimistic. The preliminary estimate of GDP is released later this month. It could look horrible. Our forecast for growth in the year will be downgraded yet again in the Q3 review. There may be no rush to put up interest rates this year. Real incomes are under severe pressure. Is government policy grinding growth out.
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The views expressed are my own and in no way reflect pro.manchester policy. In no way should the comments be considered as investment advice or guidelines or reflect political bias. UK Economics news and analysis : no politics, no dogma, no polemics, just facts. JKA is a visiting professor at MMU Business School, an economist and specialist in Corporate Strategy, educated at LSE, London Business School with a PhD from Manchester Metropolitan University.