Labour market recovery moves up a few gears in Q2 2021

The latest data download from NISRA represents the most positive set of labour market statistics since the pandemic arrived. All the key indicators moved in the right direction. Unemployment and economic inactivity rates fell in the three months to April relative to the previous quarter. Meanwhile the number of Northern Ireland employees on payrolls, hours worked and the employment rate all increased. Perhaps the only fly in the ointment was self-employment fell to a 19-year low and there was a pick-up in proposed redundancies in the first half of June albeit from very low levels. Today’s labour market statistics coupled with the recent Ulster Bank Northern Ireland PMI surveys for April and May signal that the local jobs recovery has moved up a number of gears in the second quarter. Indeed, May’s PMI posted the joint-fastest rise in private sector staffing levels in the survey’s nineteen year history. 

An easing of lockdown restrictions has facilitated a significant rebound in economic activity and employment. The successful and rapid rollout of vaccines also effectively ensures that the severe lockdowns of the past will not be required in the near future. However, it is important not to get carried away. This stage of the economic recovery was always going to lead to the strongest rates of growth and pick-up in hiring. Indeed the HMRC payrolls data may reveal a return to pre-pandemic employee levels as soon as next month.

But this is all occurring with government support and a variety of economic painkillers, such as interest rates at record lows, still in place. We are approaching the point where a variety of temporary support measures will be removed or tapered down. For example, from 1 July the level of grant in the Job Retention Scheme will start to be reduced with employers’ contribution to staff wages starting to increase too. Last month will also have seen many firms make their first repayments on Bounce Back Loans taken out in May 2020. Other temporary tax cuts such as the Stamp Duty Land Tax and reduced VAT for tourism and hospitality sector will be scaled back and removed by March 2022.

Employers are also battling a significant increase in their input costs while many others are increasing their staffing levels to cope with reams of new Brexit paperwork. All of this will affect the bottom line for a business with concerns on profitability expected to come to the fore in the months ahead. Different sectors, such as IT and the hospitality industry, have had vastly different experiences. Surviving the pandemic is one thing. Remaining viable without government support in the post-pandemic world for many is quite another. 

So what is the latest batch of labour market statistics from NISRA telling us?

Ticking-up – 2020 was a record year for redundancies and some of those proposed job losses are continuing to land in 2021 with almost 1,100 during the first quarter. But the pace of confirmed redundancies continues to ease with just  280 in May, which was more than double April’s total.  Proposed redundancy numbers, however, remain very subdued with just 140 in the three months to April 2021. That represents the lowest three month total since 2007. There has been some pick-up since then with 150 in May and 360 in the first two weeks of June. 

Trending downwards – Northern Ireland’s claimant count – which includes those on Jobseekers Allowance  (JSA) and Universal Credit claimants who were claiming principally for the reason of being unemployed – has generally been following a downward trend since May 2020’s peak of 63,800. The count fell by a sizeable 1,900 in May, following a decrease of 1,350 the previous month. That makes a cumulative decline of 9,400 (or almost 15%) relative to last year’s pandemic high.  

Headline grabber – Northern Ireland’s unemployment rate fell from 3.7% to 3.1% in the latest quarter (3 months to April 2021). That is the lowest unemployment rate within the UK and compares with a national average of 4.7%.  This unemployment rate looks and sounds more impressive than it actually is.  A low unemployment rate occurring alongside a low economic inactivity rate and high employment rate would be impressive.  Unfortunately Northern Ireland has the worst of both worlds as far as these indicators are concerned. While there have been improvements in the latest quarter, Northern Ireland still has the highest economic inactivity rate within the UK (27.9% versus UK 21.0%) and the lowest employment rate (69.8% versus UK 75.2%). 

Closing the gap – The best indicator of employees in employment is the HMRC PAYE Real Time Information System data.  This covers employees on payrolls. The latest figures provide significant revisions to earlier estimates which have the effect of increasing the peak-to-trough fall in employment but the subsequent recovery has been more rapid.  Last month’s data suggested that the peak to trough fall in payrolls was 15,937 between February and November 2020. Since November 2020 (735,432), payrolls numbers have followed an upward trajectory with six consecutive months of growth to May 2021 (745,944).  That means two-thirds of the jobs lost have been recovered so far with close to three-quarters of this recovery occurring in April and May. With payrolls now less than 5.5k below February’s high (-0.7%), we could well see a return to pre-pandemic levels in the next month or two.

Tale of two surveys  – The latest Labour Force Survey from NISRA reveals a bigger gap in employment relative to pre-pandemic levels the HMRC data. For example, total employment in the three-months to April 2021 was 3.8% below the pre-pandemic level of Q4 2019. But this larger decline conceals contrasting fortunes for self-employed and employees. According to the Labour Force Survey there were 738,000 employees in employment in the three-months to April 2021. That is now 0.7% above the pre-pandemic level in the three-months to February 2020 and follows a 1.0% q/q gain. Yet the number of self-employed has slumped by 10% q/q to a 19-year low of 98,000 and is 26% below its pre-pandemic levels. As previously reported part of this fall is due to a reclassification of people as employees rather than self-employed.  But is also highlights a significant move from self-employment to jobs with employers. 

Different sectors, different story – The HMRC payrolls data doesn’t provide a sectoral breakdown. But the Quarterly Employer Survey (QES) does. The latest QES survey for March (Q1) revealed the first quarterly decline since December 2019. The 0.3% q/q rise (+2,020 jobs) was relatively modest but the HMRC data and the PMI survey suggest a rapid acceleration in job creation in Q2. The QES reveals the contrasting fortunes of the public and private sectors. Public sector employment hit a 7.5 year high in March whereas the private sector eked out its first quarterly rise (+400 jobs) since Q3 2019. The number of private sector jobs in Q1 2021 was 11,180, or 2%, below the pre-pandemic high.

The ’K-shaped’ recovery –  The differential recovery is also evident when looking at the various industrial sub-sectors. Some sectors have recorded notable year-on-year gains since Q1 2020 while others have posted sizeable declines.  The winners include Information and Communication (e.g. ICT) +9.0% y/y, Professional, Scientific and Technical Activities +3.9%, Public Administration and Defence +1.7%, Human Health & Social Work Activities (+1.4%). Conversely, the losers have included the Hospitality sector (Food and Accommodation) -9.3% y/y; Arts, Entertainment & Recreation -8.1% y/y; and Wholesale & Retail Trade -4.0% y/y.

More hours – Signs of a labour market recovery are evident in the hours worked data. There were 26.1 million of weekly hours worked during the period February – April 2021.  That is up 2.0% q/q Northern Ireland is still working 10% fewer hours than occurred in Q4 2019 before the pandemic hit. Clearly the fact that around 90-100,000 individuals were on furlough during this period is impacting on this figure.

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