Improved manufacturing productivity and pressure labour market holds clue to puzzling job figures

Yesterday’s surprise fall in employment and higher ILO unemployment in the three months to May 2004, as recorded in the official labour market statistics, are puzzling but can be explained by a close look at developments in the manufacturing sector and other underlying market trends, according to John Philpott, Chief Economist at the Chartered Institute of Personnel and Development.

John Philpott, drawing on advance figures from CIPD’s second quarterly HR Trends and Indicators survey, to be published later this month, says:

The fall of almost 30,000 in the number of people employed in the UK, and the corresponding small rise in the number unemployed and seeking work, is puzzling given other signs - including the results of the latest CIPD survey of employers’ recruitment intentions - suggesting that the economic recovery is gathering pace. However, clues to the apparent conundrum lie in figures also published today on manufacturing employment and productivity, vacancies, average earnings, and the size of the active labour pool.

A big drop in manufacturing employment, allied to an equally sharp improvement in manufacturing productivity, indicates that manufacturing employers are determined to become more efficient in the face of ever-tougher competition as world trade starts to expand. But at the same time an increase in overall job vacancies, a further rise in the underlying rate of earnings growth and higher numbers of economically inactive people point to a tighter labour market in which employers in other sectors are finding it ever more difficult to realise their strongly positive recruitment intentions.

Up to now, job gains in both public and private sector services have continually offset manufacturing job cuts. But with the active labour pool low in numbers and poor in quality, employers - as the CIPD survey also shows - are finding it hard to recruit people employable enough to fill vacancies. This presents a major challenge to government and employers to help get more economically active people ready for available jobs.

Coming on the back of the large scale downsizing of civil service employment announced by the Chancellor earlier this week, today’s jobs figures will be somewhat embarrassing for the Government. However, a rounded assessment of today’s figures points to a strong labour market albeit one prone to increased wage inflation as increased demand for staff runs up against serious supply bottlenecks. Today’s figures do not therefore, as some commentators suggest, make an interest rate rise in August less likely

The CIPD’s second quarterly HR Trends and Indicators survey, published later this month finds that:

*More than 4 out of 5 employers (81%) responding to the survey intend to recruit staff this summer (June-August 2004).

*40% of respondents expect to be employing more staff by the summer of 2005 against 17% expecting to employ fewer: a positive balance of 23 per cent, up from 19% in the spring quarter survey.

*Almost half of respondents anticipate recruitment difficulties over the summer months and a third expect retention difficulties.

*More than a fifth of respondents reported having no applicants for vacancies.

*Over 40% found lack of specialist skills required was one of the main causes of recruitment difficulties while lack of experience and applicants wanting more pay were also common reasons given.