Demand for workers rises to levels seen before crunch

The employment outlook is improving but consumer confidence has slipped back

The worst of the recession in the jobs market seems to be over. The latest study from the Recruitment and Employment Confederation (REC) and KPMG, complementing better-than-expected unemployment figures last month, shows that demand for labour is at its highest since the onset of the credit crunch in autumn 2007.

In a sharp reversal of trends during the recession, the REC survey, which covered 14,000 recruitment agencies and consultants, reveals that the growth of permanent staff placements is at its fastest since July 2007, with temporary staff billings rising at the sharpest pace for 30 months, and a further rise in salaries for permanent recruits. Recruitment consultants reported a further rise in vacancy levels last month.

What employment creation there has been during the recession has predominantly been in part-time and temporary work; more than one million people are said by the Office for National Statistics to be in part-time work because they cannot secure full-time employment. More than half a million are temping while they look for a permanent position.

Bernard Brown, partner and head of business services at KPMG, warned: "The prospect of possibly extensive public-sector job cuts in the second half of 2010 casts a long shadow over everything. The jobs market has been cushioned in recent years by continued public sector expansion. If this is put into reverse post-election, it could have a significant effect on employment."

Despite better news about jobs, the economic outlook remains mixed. The Nationwide Consumer Confidence Index, which charts the difference between those expecting their situation to improve and those who feel it will deteriorate, slipped during December. The index recorded a 5 percentage point drop to 69 – its biggest fall since November 2008 – in the aftermath of the pre-Budget report and extensive coverage of "austerity" measures on tax and public spending from all the main political parties.

Martin Gahbauer, the chief economist at Nationwide, said: "The VAT hike and other tax changes announced in the pre-Budget report may have impacted on confidence in December, forcing people to review their expectations for the future. These lower expectations may foreshadow a more sluggish consumer outlook in 2010 as stimulus measures are withdrawn."

A survey of business confidence in construction, for the Chartered Institute of Purchasing and Supply, suggests that the sector's fortunes are past their worst but problems remain. The activity index nudged up from 47 to 47.1 last month, a dramatic contrast to the spring, when it fell to nearer 30 (readings over 50 indicate expansion).