Unemployment growth is less bad, but bad nonetheless

The rise in unemployment in the UK is slowing, there is now some hope that the level of unemployment in the UK will not reach the levels that are being experienced in the US.

The FT reported:

The rise in unemployment in the UK slowed significantly in the three months to August, giving hope that the worst job losses may be over as the economy shows signs of recovery.

The number of people out of work rose by 88,000 to 2.47m, compared with the previous three months, the lowest quarterly rise for 13 months.

The unemployment rate remained unchanged at 7.9 per cent of the workforce compared with a month ago.

The rate contrasts with recent figures of 9.8 per cent in the US and a 9.1 per cent average across the European Union.

The number of 16- to 25-year-olds out of work, far from rising above 1m as some forecasters had expected, fell by 1,000 to 946,000.

The number of people claiming job seekers allowance rose by 20,800 to 1.63m in September, the smallest rise since May last year.

These figures give us something to smile about, if the rate of unemployment growth is slowing, we may not have 3m people (10% of the workforce) unemployed by 2010, which economists had previously forecast. However the positives end there, I mean lets face it, the numbers are only slightly better than expected and we still face a unemployment hike which is destroying lives all over the country. Over 60% of people unemployed for over a year may never find work again and being unemployed makes people unhappy beyond the loss of their monetary income, people also lose their pride and sense of purpose. A  job gives more utility to a worker than just the utility from the increase in marginal wealth which employment creates.

There are implications for the macro economy too. An extra 20,000 people claiming jobseekers allowance each month is still an enormous burdon on the governments fiscal debacle. With government debt at unprecedented levels (it has now surpassed £800bn) public spending cuts are deemed necessary as soon as early 2010, which will hamper the chances of a return to the levels of economic growth which we had come to take for granted. More importantly the numbers hint that the UK faces a “jobless recovery”, which ultimately means that the large numbers of unemployed constrain consumer demand for years to come. Any route to economic prosperity will have to come via an export led recovery where foreign demand from emerging markets takes up the slack while domestic consumers continue to deleverage and firms rebuild their balance sheets. The recent weakening of the British Pound aids the transition to a trade surplus but this cannot replace strong consumer demand and high public spending. The recovery will be weak and drawn out.

With a jobless recovery on the horizon, the economic outlook for the UK is bleak at best.