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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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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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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The Great Resignation … why firms are seeing such a high staff turnover

2020 was a profound year for the economy at a global, national and local level. 2021 is also set to be an unusual year for the recruitment market too. Rather than the expected mass redundancies, economies around the world are seeing record numbers of vacancies. What is clear is that the pandemic hasn’t had the impact on the labour market that was expected. Talk of double-digit unemployment has been wide of the mark.

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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.

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NI new car sales soar by 2,594% y/y but sales volumes remain well down

Northern Ireland new car sales posted another freak year-on-year growth rate in May. There were 3,879 new cars sold locally last month. That represents a whopping 2,594% y/y increase on May 2020’s total (144) and compares with the 13,629% y/y rise recorded in the previous month. These jaw dropping growth rates are explained by the fact that comparisons are being made with last year’s lockdown lows.  For example, last April saw just  24 new cars sold. But these seemingly impressive growth rates, while welcome, compare unfavourably with pre-pandemic car sales volumes. 

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Like Brewster, NI’s millions must secure long-term legacy

In the 1985 film Brewster’s Millions, Richard Pryor’s character is left a £300 million fortune. Provided Monty Brewster meets the challenge of blowing $30 million in 30 days he can keep the whole estate. Simply giving the money away though is forbidden and there are limits on gambling and donating to charity. The lead character embarks on a spending spree and fulfils the conditions of the will, therefore inheriting the lot.

Will we see a Brewster style spending spree in the global economy in the months ahead? Some think so. Over $5 trillion dollars of savings have been stockpiled by consumers around the world with household savings rates in many countries reaching century highs. As lockdown restrictions ease the expectation is that we will see a strong rebound in consumer spending from two sources. First, pent-up demand will be unleashed as spending patterns normalise. And second, we should see an unwinding of the forced savings squirreled away during lockdown. This boost in consumer spending, which accounts for around three-quarters of Northern Ireland GDP, will fuel an economic recovery globally, nationally and locally. 

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Bumper month for property market in March

Boom times are back? March has been a bumper month for property transactions with local estate agents experiencing sales volumes not seen since 2007/08. Unlike the last property boom, the surge in activity is largely catch-up from the lockdown-induced record slump in Q2 last year (-67% y/y). The pent-up demand has been boosted by fresh demand from outside of Northern Ireland stemming from the post-COVID-19 opportunities of working from home. A temporary reduction in the stamp duty land tax has also provided an added incentive for the more expensive and typically larger properties.

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This will go down as the weirdest recession yet

If someone had told us a year ago that we were going to go through the deepest recession in a century and end up with an unemployment rate of just 3.7%, this probably would have been considered absurd. Logic would dictate that a double-digit contraction in economic output would create a double-digit unemployment figure. But there has been little logical about the past year – as the Sunday Times columnist David Smith succinctly described it, it has been “the deepest recession, but also easily the weirdest”.

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