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What the job stats tell us about the economy

During an election campaign, official statistics are eagerly pounced on by all the parties, lest they contain any evidence that might back up their arguments.

Today’s jobs and earnings data contain something for everyone.

For Jeremy Corbyn, there was news that earnings – excluding bonuses – grew by just 2.1% during the three months to the end of March. That, allied with Tuesday’s news that the headline rate of inflation hit 2.7% in April, fits with his narrative that households are suffering a squeeze on earnings under the Government.

Real wages, the rate of earnings growth adjusted for inflation, fell by 0.2% during the first three months of the year and that represents the first such contraction since the July-September quarter in 2014.

:: Household squeeze as wage growth slips

Much more of this and 2015 and 2016, when earnings outstripped inflation for the first time since the financial crisis, may start to look like a golden age with the benefit of hindsight.

For Theresa May, meanwhile, there were some bumper employment figures. The employment rate, the proportion of the working age population who are employed, is at an all-time high of 74.8%.

And the jobless rate, the proportion of people who are claiming out-of-work benefits, fell from 4.7% to 4.6% during the three months to the end of March. That was better than the City’s legions of economists had been expecting and is the lowest it has been since June-August 1975.

Equally encouragingly, for the Conservatives, will be the make-up of the jobs market.

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Video:Ian King Live: Inflation’s squeeze on households

The first three months of the year saw 200,000 people go into full-time jobs, with the number of people in part-time roles falling by 78,000.

This represents quite a turnaround from the days when David Cameron and George Osborne regularly had to face accusations that, while the number of people in work was rising, the majority of them were going into poorly-paid part-time roles.

The economy is continuing to create new jobs. There were more jobs created in March than in any single month since April 2014.

That meant that there were some 770,000 job vacancies by the end of April, the highest level on record, meaning that for the first time there are fewer than two unemployed people for every job going.

So what’s going on?

Normally, with record numbers of people in work and a low number of jobless people available for each vacancy, wages might expect to be growing more strongly.

It is not clear why they are not but one theory is that, following all the instability after the financial crisis and now further uncertainty ahead of the UK’s departure from the EU, many people are happy to sit tight in their jobs rather than risk moving on to something less secure and less certain.

And, while earnings growth is now beginning to lag inflation once again, it is worth recalling that more and more households have locked in their mortgage rates at very low levels.

They may be calculating that, so long as they can easily cover their mortgage payments, they have no real reason to ‘bid up’ – in the jargon – their wages.

A street cleaner passes the Jobcentre Plus office on January 18, 2012 in Bath
Image:The rate of unemployment is at its lowest level since 1975

Household debt, despite some of the concerns being expressed by the Bank of England and other economists, has fallen since the financial crisis and certainly as a proportion of GDP. So again, with most people feeling their borrowings are under control, they have little reason to rock the boat with higher wage demands.

But what of the sharp increase in the number of full-time jobs being created?

One theory here is that, ahead of Theresa May triggering Article 50 at the end of March, a lot of employers sought to ‘lock in’ employees from the EU ahead of a possible clampdown on migration.

That would certainly seem to be borne out by the facts, with the number of workers from the EU rising by 171,000 during the period, despite uncertainty over whether Mrs May can reach a deal over EU citizens living here and British expats living in the EU.

Perhaps the most dispiriting aspect to the figures, though, are what they tell us about the overall shape of the UK labour market.

The fact that there are so many job vacancies going unfilled points to the UK’s ongoing skills shortage, with many unemployed people either in the wrong part of the country or lacking the requisite skills to fill the roles needing filling.

The UK’s lousy productivity record shows no sign of improving.

Other figures published by the Office for National Statistics reveal that output per hour worked during the first three months of the year was down by 0.5% on the final three months of 2016.

This is especially disappointing because, during 2016, there were signs of a productivity improvement.

This may be linked to the high number of people in work.

Other European countries, such as Germany and France, have a much better productivity record than the UK but much higher unemployment rates.

Britain prefers to have its least productive workers in employment rather than on the dole.

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