Should we be cheering the fall in unemployment?

Unemployment fell by 35,000 between December and February to 2.65 million, according to official figures from the Office for National Statistics (ONS) – the first quarterly drop since May 2011.

But commentators have not been throwing their hats in the air: the response has been cautious, rather than uniformly optimistic.

Jonathan Portes, director of the National Institute of Economic and Social Research (NIESR) and a former senior government economist, told Channel 4 News that while the figures were encouraging, “it is too soon to be over the moon”.

Let us hope our forecast is wrong. We could be wrong. Maybe this is not a blip and it will not be as bad as we had feared. Jonathan Portes, NIESR

‘Less pessimistic’

The NIESR expects unemployment to climb to just below 3 million, but Mr Portes said: “Let us hope our forecast is wrong. We could be wrong. Maybe this is not a blip and it will not be as bad as we had feared. There are some signs that we should be less pessimistic than we were.”

There was a fall in the number of jobless men and 16 to 24-year-olds. But youth employment also dropped. This apparent contradiction is explained by the fact that the number of people in this group was smaller in the three-month period covered than the previous quarter and because there was a rise in economic inactivity in this group. Most of these economically inactive people were in full-time education.

Female unemployment rose to its highest level for 25 years and long-term unemployment reached a plateau last seen in 1996.

The figures also show a rise in part-time employment and a fall in full-time employment, with an 89,000 rise in the number of people working part-time because they could not find full-time jobs.

‘Right direction’

Employment Minister Chris Grayling said the statistics were “a step in the right direction”, but he conceded that “we still have a long way to go”.

Mr Portes cautioned against reading too much into the figures for youth unemployment because the sample size was too small, adding: “We can still say that young people have suffered very badly during this recession. What I would draw attention to is that young people claiming jobseeker’s allowance (JSA) has continued to rise very sharply.

“The number of young people who’ve been claiming JSA for more than a year is now 55,000, which is 10 times the figure it was just four years ago. That is astonishing.”

On the rise in part-time employment, Mr Portes said: “If employers are suffering from a lack of demand and their way of dealing with this is to put more of the workforce on short time, that is better than the alternative. That is better than sacking people.”

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Work Foundation researcher Andrew Sissons said the fall in unemployment was being driven by “an increasingly part-time recovery”, with a drop in the number of full-time jobs.

He said: “There are now 1.4 million people in part-time work who would prefer a full-time job, which is the highest level since records began.”

Mr Sissons added: “The fall in youth unemployment should offer little encouragement. Employment amongst young people has continued to fall, and the small fall in unemployment is down to a rise in inactivity.”

A properly recovering jobs market is not characterised by a growing army of under-employed part-timers. Dr John Philpott, CIPD

Dr John Philpott, chief economic adviser at the Chartered Institute of Personnel and Development, said “it would be unwise to get too excited by a welcome fall in unemployment”, adding: “A properly recovering jobs market is not characterised by a growing army of under-employed part-timers and pay rises still falling well short of price inflation.”

Mr Grayling was keen to stress that “some of those moving into part-time work we know are women”. This was a point he made on Tuesday, when he said: “I think we are seeing more stay-at-home mums saying, ‘I think I’ll look for a part-time job’.”

But Channel 4 News FactCheck concluded that:”a more in-depth look at the government’s own figures suggests it’s a theory that doesn’t hold much much water”.

Mike Fetters, director at jobs website totaljobs.com, said: “Today’s figures flatter to deceive. Whilst on the surface they look rosier than those of the past few months, they hide a number of concerns, not least the staggeringly high levels of under-employment.”

But Tom Lovell, group managing director of recruitment firm Reed, said “we could be seeing firm evidence that the labour market is beginning to stabilise”.

David Kern, chief economist at the British Chambers of Commerce, said he was encouraged by the figures because “they show the ability and willingness of the private sector to drive recovery at a time when the public sector is likely to shrink further”.

Inflation

According to the ONS, average earnings rose by 1.1 per cent in the year to February, way below inflation.

The government’s preferred measure of inflation, the consumer prices index, has just risen by 0.1 per cent to 3.5 per cent. Earnings are not keeping up with the cost of living, which is making people poorer.

The Bank of England’s monetary policy committee (MPC), which sets interest rates, has consistently said that it expects inflation to fall to 2 per cent in 2012.

But Paul Tucker, a deputy governor of the bank and a member of the MPC, said in a speech on Wednesday that it might take longer for this to happen.

Mr Tucker said that increases in oil and gas prices, combined with duty changes announced in the budget, could mean that inflation in the short term was “a little higher” than expected.

He said: “I think inflation might remain above 3 per cent throughout the second quarter of this year, and possibly into the second half of the year.” With wage increases subdued, this means the pressure on household finances could continue throughout 2012.