October 14 2015

Britain’s jobless rate has dropped to levels not seen since 2008, but wage growth has slowed a little. UK unemployment rate falls to 5.4%. Basic pay growth dips to 2.8%. Germany trims economic growth forecast, blaming weakness in China…

 

Powered by Guardian.co.ukThis article titled “UK unemployment rate hits seven-year low of 5.4% – live” was written by Graeme Wearden (earlier) and Julia Kollewe (now), for theguardian.com on Wednesday 14th October 2015 12.26 UTC

The bank earnings season is in full flow on Wall Street. Bank of America made a quarterly net profit of $4.1bn in the third quarter, compared with a loss of $470m a year ago (which was caused by massive mortgage-related costs). The second-biggest US bank beat analysts’ forecasts, despite falling revenues. Chief executive Brian Moynihan has been reducing costs, by slashing jobs and restructuring the business.

The bank, which has paid more than $70bn in legal expenses since the height of the financial crisis in 2008, said its legal costs fell for the third quarter in a row, to $231m from $6bn a year earlier. Revenues, however fell by 2.4% to $20.9bn, with the bank pointing to turbulent markets.

Moynihan said:

The key drivers of our business – deposit taking and lending to both our consumer and corporate clients – moved in the right direction this quarter and our trading results on behalf of clients remained fairly stable in challenging capital markets conditions.”

Goldman Sachs is due to report its quarterly results on Thursday at lunchtime, followed by Citigroup.

Updated

Germany trims growth forecast

Germany has trimmed its growth forecast for this year, blaming weakness in China and other major emerging economies. Economy minister Sigmar Gabriel said Berlin now expects the German economy to grow by 1.7%, down from the 1.8% predicted in April. Next year’s forecast was left unchanged at 1.8%.

Gabriel said the emissions-rigging scandal at Volkswagen, which has led to fears that the “Made in Germany” brand could be damaged, “has no enduring effect” on current economic forecasts.

He also said that money being pumped into education to help cope with the influx of refugees into Germany could work “a bit like a stimulus programme” starting next year.

Gold hits 3 1/2 month high, stock markets and dollar down

Let’s take a look at the markets. Gold prices have hit 3 1/2 month highs as concerns over weak inflation and growth in China reinforced expectations that the long-awaited US interest rate hike is still some way off.

The Fed surprised markets when it left rates unchanged at its September meeting, citing concerns about the global economy, but Fed chief Jane Yellen subsequently said the central bank was on track to increase borrowing costs later this year. However, there are signs of divisions within the Fed: Daniel Tarullo, a member of the Fed’s board of governors, told CNBC on Tuesday that it would not be “appropriate” to raise rates this year.

Spot gold rose to $1,176.20 an ounce earlier, its highest level since the end of June.

Stock markets have slipped for a second day and the dollar slid to its lowest level in nearly a month after fresh signs of a slowdown in the Chinese economy.

The FTSE 100 index is down 0.6% at 6306.45, a fall of more than 35 points. Germany’s Dax has also lost 0.6% while France’s CAC has slipped 0.3%.

German utility E.ON has clinched a $1.6bn deal to sell its Norwegian oil and gas business to Russian billionaire Mikhail Fridman. Norway’s oil and energy minister said the deal will be handled like another other – despite EU sanctions against Russia, which were imposed over the Ukraine crisis. Norway is not a member of the European Union.

Tord Lien said in a statement sent to Reuters:

An application for such an approval will be handled the usual way. The restrictive measures apply to activities in Russia. That international firms wish to invest on the Norwegian continental shelf is good.”

Mikhail Fridman, chairman of Alfa Group.

Mikhail Fridman, chairman of Alfa Group. Photograph: Sergei Karpukhin / Reuters/REUTERS

Shares in E.ON turned positive on the news and are now trading up 2.6%.

Fridman’s LetterOne fund had emerged as the frontrunner to buy the German company’s Norwegian North Sea assets after the billionaire, who is of Ukrainian descent, was forced to sell his British North Sea assets due to the western sanctions.

Updated

The Institute for Public Policy Research has looked at the regional disparities in the UK labour market. The think tank’s new chief economist, Catherine Colebrook, said:

The latest data suggests the economy is continuing to create jobs, with the employment rate at a new high, and unemployment at its lowest level since 2008.

However, a closer look at the data suggests weaknesses remain: there are big regional disparities, with the employment rate in the North East a full 10 percentage points lower than that in the South West.

And inactivity across the UK remains high, at just over a fifth of the working-age population. The government will have to tackle these weaknesses if it is to succeed in creating two million more jobs over the next five years.”

Here’s Heather Stewart on today’s jobs report:

Summary: jobless down, employment at record high

Here are the main points from today’s labour market report, covering June to August 2015 (you can scroll back to 9.30am for full coverage)

  • There were 31.12 million people in work, 140,000 more than for March to May 2015 and 359,000 more than for a year earlier.
  • There were 22.77 million people working full-time, 291,000 more than for a year earlier. There were 8.35 million people working part-time, 68,000 more than for a year earlier.
  • The employment rate (the proportion of people aged from 16 to 64 who were in work) was 73.6%, the highest since comparable records began in 1971.
  • There were 1.77 million unemployed people (people not in work but seeking and available to work), 79,000 fewer than for March to May 2015 and 198,000 fewer than for a year earlier.
  • There were 970,000 unemployed men, 125,000 fewer than for a year earlier. There were 803,000 unemployed women, 73,000 fewer than for a year earlier.
UK labour market
  • The unemployment rate fell to 5.4%, lower than for March to May 2015 (5.6%) and for a year earlier (6.0%). It has not been lower since March to May 2008. The unemployment rate is the proportion of the labour force (those in work plus those unemployed) who were unemployed.
  • There were 9.01 million people aged from 16 to 64 who were economically inactive (not working and not seeking or available to work), little changed compared with March to May 2015 but down slightly (13,000) compared with a year earlier.
  • The inactivity rate (the proportion of people aged from 16 to 64 who were economically inactive) was 22.1%, little changed compared with March to May 2015 and with a year earlier.
  • Comparing June to August 2015 with a year earlier, pay for employees in Great Britain increased by 3.0% including bonuses and by 2.8% excluding bonuses.

The full report is online here (as a pdf).

Updated

The CBI, which represents Britain’s businesses, has welcomed today’s labour market report – and implicitly criticised George Osborne’s new National Living Wage:

Matthew Fell, CBI interim chief policy director, says:

“We’re encouraged by businesses creating more jobs, leading to rising employment. It’s also good to see falling unemployment, particularly among those out of work for more than one year dropping by 44,000.

“While we want to see higher pay growth, this must go hand in hand with increases in productivity. It’s crucial that the Low Pay Commission retains autonomy over future National Living Wage rises to avoid unnecessary political interference and help boost jobs.”

Last month, outgoing CBI chief John Cridland warned that raising the minimum wage to £9 an hour by 2020 was “a gamble” that could cost jobs.

Resolution Foundation: Pre-crisis pay packets still far away

Workers in Britain’s financial sector are closest to seeing their real pay hit pre-crisis levels, according to the Resolution Foundation.

The thinktank also flags up that construction workers’ wage packets are lagging far behind.

This chart shows how real wages (pay rises minus inflation) began to fall when the financial crisis struck.

UK wage data

UK wage data Photograph: The Resolution Foundation

Matthew Whittaker, chief economist at the Resolution Foundation, explains:

“It’s encouraging to see unemployment falling again, after a pause earlier this year. But there is significant variation in the extent to which this jobs revival has been shared across the country. Many parts of the UK remain a long way short of their pre-recession levels.”

“Private sector employees are enjoying a mini pay surge that is helping to narrow the substantial wage gap that opened up after 2008. However, maintaining this momentum will prove much harder once inflation starts heading back towards its target rate next year.

Whittaker also fears that the public sector pay cap will lead to problems:

“As recovery builds, attention will turn to who is benefiting from it. The strong recent performance of wages in the low-paying retail sector is encouraging, but the picture is much less promising in manufacturing and construction. Meanwhile, ongoing pay constraint in the public sector is likely to translate into increasing recruitment and retention difficulties in the coming months.”

German bank Berenberg have produced a chart showing how real wage growth (adjusted for inflation) has picked up as the jobless rate has fallen:

UK wages

UK wages Photograph: Berenberg

Kallum Pickering, Berenberg’s senior UK economist, explains:

Falling unemployment is boosting wages! The risk that low inflation might hamper growth in wages now looks misplaced, with wage data continuing to show stable progress (see chart 1) despite weak headline inflation. The pace of real wage growth is now broadly consistent with the pre-crisis average, though unemployment is still around 0.3pp higher.

Our view is that the labour market still has some more progress to make before the unemployment rate finally settles. This further improvement however, is unlikely to bring about further real wage gains. Further slack erosion in the labour market will be consistent with higher nominal wages but, it will take place as inflation recovers.

Today’s labour market report also shows how Britain and the US benefitted from massive monetary stimulus programmes after the financial crisis struck:

UK unemployment stats

Many public sector workers are missing out on the recent increase in wages, because chancellor George Osborne has enforced a 1% pay rise freeze that could last until 2019.

Perhaps someone should remind the Department of Work and Pensions….

Updated

Britain’s economic productivity is still below its potential, warns Ian Brinkley, chief economic adviser at Lancaster University’s The Work Foundation.

Brinkley says:

“The employment growth pause that we saw in the first half of 2015 is over – job growth resumed over the three months to August compared with the previous three months, driven by more young people and older workers in employment.

Looking ahead, we can expect productivity to grow faster and employment to grow more slowly than they have in recent years as the labour market starts to return to normal. But a full recovery in productivity could be long and slow. Even with the recent boost we are still 15 per cent below where we would have been had the pre-recession productivity trend continued, and manufacturing productivity still gives serious cause for concern.”

Around four-fifths of the 359,000 jobs created last year are full time:

Part time/full time work

The fall in the jobless rate indicates there’s little slack in the UK labour market, which could mean borrowing costs rise in early 2016.

Dean Turner, Economist at UBS Wealth Management, explains:

Rising wage pressures will likely prompt the Bank of England to hike interest rates soon, most likely in the first quarter of next year.

However, tighter monetary policy is unlikely to derail the UK from its current growth trajectory, as nascent signs productivity growth should keep inflation pressures in check, the consequence being that the path of rate increases will be gradual.”

Wages have been rising this year because companies are managing to increase their productivity, argues economist Howard Archer of IHS Global Insight.

He says:

One factor that seems to be limiting employment growth compared to earlier in 2015 is that UK productivity is now seeing genuine improvement – with earnings growth stronger, UK companies are likely stepping up their efforts to lift productivity by getting more out of their existing workers.

Public sector keeps shrinking

Britain’s public sector workforce has shrunk again to just 17.2% of the working population, the lowest since records began in 1999.

UK unemployment

Today’s labour market report shows that there were 5.36 million people employed in the public sector for June 2015. This was:

  • down 16,000 from March 2015
  • down 59,000 from a year earlier
  • the lowest figure since comparable records began in 1999

In contrast, there were 25.74 million people employed in the private sector for June 2015. This was 58,000 more than for March 2015 and 472,000 more than for a year earlier.

Here’s where jobs were created, or destroyed, in the last year:

UK unemployment

After several years of suffering falling real wages, British pay packets have now been outpacing inflation for the last year or so.

Chancellor George Osborne likes the look of today’s figures:

My colleague Andrew Sparrow is covering all the drama around the fiscal charter vote in his Politics Live blog:

The number of people claiming jobless benefits appears to have bottomed out just below 800,000, with the claimant count rising by 4,600 last month.

Claimant count

Claimant count Photograph: ONS

Basic pay growth slows

Wage growth continues to outpace inflation, but not by as much as expected.

Basic pay, excluding bonuses, rose by 2.8% annually in the three months to August. That’s a slight fall compared to the 2.9% recorded a month earlier. Economists had expected a rise to 3%.

Total earnings, including bonuses, did increased by 3%.

UK wage growth

UK wage growth Photograph: ONS

UK inflation actually fell by -0.1% last month, so this means real wages are rising by around 3%.

Updated

Britain’s employment rate has risen to 73.6%, the highest since comparable records began in 1971.

UK employment rate

UK jobless rate falls to 5.4%

Here we go! Britain’s jobless rate has hit a new seven year low, falling to 5.4% in the three month to August.

The Office for National Statistics reports that the number of people out of work fell by 79,000 in the last quarter, taking the jobless total down to 1.774 million.

But the claimant count – the number of people claiming unemployment benefit – has risen by 4,600 in September. That takes the total to 796,000. That has dashed predictions of a small fall in the claimant count.

More to follow….

Updated

Updated

UK government urged to reintroduce compulsory work experience

Pupils wearing school uniform in a secondary comprehensive school , Wales UK<br />CYA7MC Pupils wearing school uniform in a secondary comprehensive school , Wales UK

Ahead of today’s unemployment report (at 9.30am BST), the British Chambers of Commerce has urged the government to reintroduce compulsory work experience for school children.

BCC director general John Longworth believes it was a mistake to stop forcing schools to offer work experience for under 16-year-olds three years ago. It would help bring down Britain’s ‘stubbornly high’ youth unemployment rate, and help young people make the jump to the workplace.

Longworth says:

“Business and school leaders are clear – we won’t bridge the gap between the world of education and the world of work unless young people spend time in workplaces while still at school.

“It was careless of Government to end compulsory work experience in 2012, but it is not too late to correct the mistake and work with companies and schools to ensure that every school pupil has the chance to feel the energy, dynamism, buzz and challenge of the workplace for themselves.

Work experience is a touchy subject in the UK; those with good contacts typically get a head start at bagging the best placements. Still, even a week painting fences at a duck sanctuary can lead (eventually) to a desk in the newsroom….

Updated

Tony Cross of Trustnet Direct agrees that today’s weak China inflation figures, and fresh deflation at the factory gate, are a worry for traders:

Downbeat data from China – this time in the shape of weaker than expected inflation – is adding another layer of concern as to how the world’s second largest economy is managing the slowdown, and as a result the base metal mining stocks once again are wearing more than their fair share of the losses.

Here’s the picture across Europe:

European markets, October 14 2015

Domino’s Pizza, cheese and tomato pizza

Pizza chain Domino’s is bucking this morning’s selloff.

Domino’s shares have jumped by 13% to a record high of £10.14, after it raised its profit forecasts and revealed that UK like-for-like sales are up by a remarkable 14.9% in the 13 weeks to September 27.

CEO David Wild credited “the success of our strategic and marketing initiatives”; the company is strong on social media, has a successful smartphone app, and has sponsored several popular TV shows from The Simpsons to Hollyoaks.

Updated

Germany’s DAX and France’s CAC are both down around 1%, adding to losses earlier this week.

Bloomberg TV’s Carolyn Hyde flags up that more than 100 billion euros has been knocked off Europe’s largest companies value this week already:

VIEW FROM CANARY WHARF TOWER ON CITY OF LONDON SKYLINE AND RIVER THAMES, LONDON, UK

Stock markets across Europe are in the red at the start of trading, and China is getting the blame.

The FTSE 100 has dropped by 55 points, or 0.85%, in early trading to 6288.

Mining stocks are all down, with Glencore dropping 2.5% and Anglo American shedding 2.3%.

Burberry is also leading the fallers, down 2%. The fashion firm is expected to report slowing sales on Thursday, due to sliding demand for its trench coats and natty checks in China.

Mike van Dulken, head of research at Accendo Markets, says today’s Chinese inflation figures are a worry for investors:

While Chinese consumer inflation (CPI) slowed further, Producer Prices made it a record 43rd straight month of deflation.

While inflation gives the People’s Bank of China room to ease monetary policy further to support the slowing economy, hopes of more stimulus are clearing failing to appease market concerns especially with Q3 GDP data only days away

Chinese policymakers may get another nudge to stimulate their economy next Monday, when GDP figures for the third quarter are released.

Growth is expected to slow to an annual rate of 6.8%, from 7.0% in the second quarter of this year. That would be the first sub-7% reading since the financial crisis.

August and September were turbulent times for China, with wild swings in the stock market. That could also hit the growth rate, if worried firms started cutting investment.

European markets are expected to fall this morning, following the weak Chinese inflation data overnight:

Chinese deflation fears as producer prices slide again

New fears over China’s economy are rippling through the markets this morning, after two piece of economic data showed that demand is weakening.

The producer prices index – which measures what Chinese firms charge for their goods – slumped by 5.9% year-on-year in September. That matches August’s decline, which was the biggest drop since the financial crisis in 2009.

It’s also the 43th month running in which producer prices have fallen.

It suggests that companies are being forced to slash prices in an attempt to stimulate sales, as Beijing tries to rebalance its economy without a ‘hard landing’.

Consumer price inflation also fell, with the CPI index dropping from 2% in August to 1.6% in September, partly due to slowing food prices

And that hit markets in Asia, with traders worrying that the Chinese economy is in urgent need of fresh stimulus.

As Chris Green, an Auckland-based strategist at First NZ Capital Ltd, told Bloomberg:

“In terms of global growth, the risk is skewed towards the downside.”

Angus Nicholson of IG reckons Beijing will act soon, saying:

Today’s Chinese CPI essentially guaranteed further cuts to the interest rate and the reserve requirement ratio (RRR) before the year is out.

But right now, all the Asian markets are in the red – with Japan’s Nikkei closing down almost 2%.

Asian stock markets

Asian stock markets today. Photograph: Thomson Reuters

Updated

Introduction: UK unemployment report in focus

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Coming up this morning…

The latest UK unemployment report, due at 9.30am BST, will show whether or not Britain’s labour market recovery lost pace over the summer.

The jobless rate is expected to remain at 5.5%, while the number of people claiming unemployment benefit is tipped to fall by around two thousand.

The latest UK earnings figures will also be closely scrutinised. Last month, we saw that wages were rising at their fastest rate in six years, at 2.9% year-on-year. Some in the City predict they will have risen again to around 3.1%.

Michael Hewson of CMC Markets explains:

Today’s average earnings data could present Bank of England policymakers with a problem in the short term if they continue to trend higher as they have been doing for the past few months.

Expectations for the three months to August are for an increase in wages to 3.1% from 2.9%, giving a further boost to hard pressed consumers who up until a year ago had undergone a five year fiscal squeeze in the other direction. The main concern would be if wages start to push higher in a wage/price spiral but that doesn’t seem likely at this point in time

We also get a healthcheck on the eurozone at 10am BST, when the eurozone industrial production figures for August are released. Economists expect a fall in output, as we’ve already seen weak data from Germany for that month.

And over in Greece, European commissioner Pierre Moscovici is visiting prime minister Alexis Tsipras to discuss the Greek bailout programme this afternoon.

We’ll be tracking all the main events through the day….

Updated

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