Ongoing deterioration since early 2011

The labour market deteriorated notably in the 3 months to September, continuing the slowing since the start of the year. Employment fell 200k and unemployment rose 130k: the weakest labour market numbers since mid-2009. Correspondingly, the unemployment rate rose to 8.3%: the highest since 1996 and the first notable move outside the narrow 7.7-8.0% range seen from mid-09 to mid-11.

The deterioration in the labour market continues to hit younger workers the hardest: around 55% of the decline in total employment in the 3 months to September was accounted for by 18-24 year olds, taking the unemployment rate of that age-group to 19.6%. In contrast, although still having risen somewhat since the start of the financial crisis, the unemployment rate for 25-49 year olds is only around 6.5%, and the unemployment rate for 50-64 year olds is around 5%.

Underlying average earnings growth (ie excluding bonuses) remained broadly flat, at around 2.2% in the public sector and 1.8% in the private sector. But set against CPI inflation of around 5% at present, real wages continue to be squeezed notably.

Overall, both the weakness of GDP growth over the last few quarters (+0.5% YoY) and more downbeat expectations for the future are likely taking their toll on the labour market at present. Moreover, with evidence suggesting that QoQ GDP growth is broadly zero at present and the Eurozone sovereign debt crisis continuing to weigh on both financial markets and the economic outlook, further deterioration in the labour market over the next few months seems likely, in our view.

source: Bank of America ML