Flattered by furlough… a jobs rewind beckons?

Lockdowns prompted a pause in the labour market with Rishi Sunak rolling out the safety net that was the Job Retention Scheme (JRS). With the play button then hit as many sectors went back to work. In more recent times, we’ve seen a fast forward in the labour market figures, with the number of payrolls rising for nine consecutive months and hitting a record high for the third month running in August. We may well see this trend continue in September. But with the furlough scheme ending in a couple of weeks, we know it isn’t going to be a straight-line recovery from there. The Jobs Retention Scheme has flattered the jobs figures.  But we’re now moving to a new stage of the recovery, a stage where stimulus is being turned off, inflationary headwinds are intensifying and the increased burden of tax rises is due to be felt from April 2022. We may well therefore see something of a rewind in the jobs data in the next few months as the labour market adapts to the post-furlough world. Don’t be surprised if we see payrolls fall back below pre-pandemic levels before the year is out.  Getting back to pre-pandemic levels of self-employment and hours worked will take quite some time.

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

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Chief Economist’s Weekly Briefing – Constrained

July’s sharp slowdown in UK GDP growth highlighted the supply- and demand-side challenges to the recovery. Supply chain disruption continues to be widespread and staff shortages remain an issue. Meanwhile, the largest tax shake-up in a decade is aimed at solving short- (Covid) and long-term (social care and ageing) funding challenges.

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Output growth softens to five-month low

Today sees the release of August data from the Ulster Bank Northern Ireland PMI®. The latest report – produced for Ulster Bank by IHS Markit – showed signs of growth in the Northern Ireland private sector losing momentum, with both output and new orders rising at softer rates. Solid job creation continued, however. Meanwhile, near record increases in input costs and output prices were recorded.

Most of the UK regions saw business activity grow at a slower rate in August, and Northern Ireland was no exception.  Last month marked local firms’ slowest rates of growth in output, orders and employment in five months.  But a two-speed recovery was on show in August at a sector level. 

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Survival of the richest…

Recessions traditionally follow a standard playbook – a fall in output followed by a lagged rise in job losses and unemployment, triggering a decrease in consumer spending, hitting retail sales and the housing market.

The COVID-19 pandemic though spawned a new recessionary variant. The UK economy posted its biggest slump in output in over 300 years. Yet a comparable rise in unemployment did not occur. Similarly, a fall in house prices was viewed as a ‘no brainer’ but it too did not occur.

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Chief Economist’s Weekly Briefing – Wind Down

Covid-19 cases are on the rise again, especially in Scotland, where schools re-started three weeks ago. More data confirming a degree of caution set in amongst consumers mid-summer – UK net consumer credit growth dropped to zero in July and the savings rate is still unusually high. Meanwhile labour shortages appear to be intensifying.

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Chief Economist’s Weekly Briefing – Softer

Supply-side bottlenecks and ongoing struggles to fill vacancies are staging to drag on the recovery. And as we learned through July, rising caseloads can quickly turn consumers cautious. An upsurge in cases as schools return (and evidence of falling vaccine efficacy as time elapses) might conspire to be the next ‘bumpy’ part of the recovery.

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Podcast: Episode 10 – Survival of the richest – August 2021

The podcast that keeps you up to date with what is happening economy-wise in Northern Ireland.  Telling you what you need to know but not necessarily what you want to hear. It is better to be prepared for the economic environment we are operating in and not the world we would like to be in.

Recessions traditionally follow a standard playbook. A fall in output followed by a lagged rise in job losses and unemployment triggering a decrease in consumer spending hitting retail sales and the housing market.

That was the typical path of recessions. The COVID-19 pandemic spawned a new recessionary variant. The UK economy posted its biggest slump in output in over 300 years.  Yet a comparable rise in unemployment did not occur. Similarly, a fall in house prices was viewed as a ‘no brainer’ but it too did not occur.

Rather than double-digit declines in house prices, almost every major economy is reporting booming house prices, marking the biggest rally in more than two decades.

The local housing market has defied economists’ predictions too.

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Chief Economist’s Weekly Briefing – Hey, it’s complicated!

Data releases are sending out mixed signals to the Bank of England’s MPC. On the one hand, there is rising evidence of growth slowing in Q3 as consumers turned cautious and firms struggled with supply-side shortages. Yet the labour market continues to recover rapidly with any slack declining fast. The latter could push up wages for longer, risking a firming up inflation expectations.

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Are we there yet?…Yes and No

One of the key questions asked in any recovery is ‘are we back to where we were before the downturn struck?’ For the most recent recession the crucial benchmark is pre-pandemic levels / rates of activity / employment etc.  The latest batch of labour market statistics from NISRA highlights further improvements on the road to recovery.  But in response to the question ‘are we there yet?’ as far as the labour market recovery is concerned, the answer is both yes and no. It all depends what aspect of the labour market you focus on. For example, Northern Ireland’s economic inactivity rate (25.9%) has returned to pre-pandemic (Q4 2019) levels but the employment (71.1%) and unemployment rates (3.8%) have not.  

The most closely watched monthly labour market statistic is the HMRC PAYE payrolls data. This is a timely indicator of how many employees are on employers’ payrolls. As lockdown restrictions have eased there has been a marked increase in employee numbers. Indeed, June’s figures eclipsed the pre-pandemic payrolls high that occurred in February 2020. July witnessed the largest monthly jump in payrolls (+7,927 or +1.1%) since the series began, taking the total number of employees to 762,596 – a fresh record high.  That is up 27,000 employees from November 2020’s pandemic low and 9,600 (+1.3%) above February 2020’s pre-pandemic high. 

So are we there yet? As far as payrolls data is concerned it is a resounding yes and some! However, there is a statistical wrinkle here that inflates the true measure of employment and the amount of work being undertaken. The payrolls data includes staff who have been furloughed (i.e. availing of the Job Retention Scheme) but many of whom are still doing no work whatsoever. As of the end of June there were 44,000 employees on furlough. The current figure will be even lower as the scheme nears its September expiry date and more employees return to work as lockdown restrictions ease. Nevertheless a proportion of these employees will ultimately move into unemployment / economic inactivity. How many remains to be seen.

The encouraging news that the number of payrolled employees has never been higher is tempered by dismal news on the self-employment front. The number of self-employed fell to 91,000 in Q2 2021 – a 22-1/2-year low.  That’s down 46,000 or 34% relative to pre-pandemic levels. Many self-employed have switched status or jobs and become employees.  However, overall employment (employees + self-employed) in Q2 2021 remained 3.0% below pre-pandemic levels which equates to 26,000 fewer individuals in work. The self-employment and furlough issues also explain why the total number of hours worked in Northern Ireland is still recovering but not yet recovered. In Q2 2021 the total number of hours worked in Northern Ireland was 5.5% below Q4 2019 levels (pre-pandemic). That means just over two-thirds of the decline in total hours worked following the pandemic has been recovered so far. Only when this statistic returns to pre-pandemic levels can we be more authoritative that the labour market has truly recovered in a meaningful way. In the meantime, skills shortages across the length and breadth of the economy represent one of the biggest challenges facing employers in the months ahead.

Overall, Northern Ireland’s labour market statistics are showing several signs of improvement. Payrolls data may have returned to pre-pandemic levels but several indicators have a very long way to go before we can declare mission accomplished i.e. all labour market indicators return to pre-pandemic levels. 

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 700 during the second quarter. That compares with almost  1,100 in Q1. July saw 250 redundancies following 300 in June. Proposed redundancy numbers jumped (+73%) from 490 in June to 850 in July, marking the highest number of proposed redundancies in 10 months. One-in-four of these proposed redundancies were in manufacturing with a similar proportion within the wholesale and retail trade sector. These level of redundancies remain well down on last year’s levels.

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