Don’t be fooled by the jobless figures

Surely yesterday’s news of the fastest fall in UK jobless claims since 1997 must be a good sign?

You’d think so. Economists had expected the dole queues to lengthen. Instead, they shrunk by 32,300 people.

Sure, that was starting from the highest level of claims for at least 40 years. But as the red line in the chart below shows, the sharp drop in the claimant count over the last 12 months has been pretty impressive.

So it’s tempting to conclude that other recent stats could be painting too gloomy a picture of the UK economy.

Tempting but wrong. The trouble is, the claimant count figures are just a small chapter in a much bigger story. And here’s where the bad news kicks in.

The blue line on the chart shows the UK employment rate. This is the percentage of the workforce that’s actually working. And it’s plunged to its lowest level since November 1996.

Source: Bloomberg

The number of Brits who are either without a job, or who’ve given up looking for one, has soared to 28% of the UK workforce. That’s a staggering 10.6m people. The total of those who are classified as “economically inactive” has now hit a record high of 8.2m.  

In other words, the government may be able to move people off its jobless radar screen, for example by switching them to the likes of incapacity benefit. And with jobs hard to find, many more have gone into full-time education. There are now 2.3m students in the country, the highest level since records began in 1993.

But the harsh truth is that just over 72% of the workforce now has to bear the burden of all the country’s bills.

And here’s the really scary bit. The last three months of 2009 saw the public sector take on 7,000 workers, while the private sector continued to shed staff. With major state spending cuts in the pipeline – whatever the politicians are currently not saying – that’s about to reverse in a big way. Many more job losses are on the cards.

The bottom line is very clear. Fewer people working, and having to pay more tax, will mean less money around for spending in shops and on property. So ignore that claimant count blip. Over the next two years, the outlook for UK retailing and housing is looking even grimmer.