Unemployment falls but recovery evades the high street

September shows year's biggest jobless fall, while retail sales slip to lower level than a year ago

Unemployment fell in September by more than in any month this year, but there was no sign of recovery in the high street, with retail sales now lower than they were a year ago.

The decline of 27,000 in the claimant total was much larger than the markets had expected. Spread across all regions, the fall in unemployment brought the jobless count down to 2,265,000.

The marked trend since the start of the year of progressively smaller monthly declines in unemployment now appears to be reversing itself.

According to the Central Statistical Office, the trend monthly decline in unemployment is currently running at between 10,000 and 15,000.

However, flat retail sales in September also came as a surprise to the markets, which had been expecting a rise of more than half a per cent on August. This, in turn, meant that retail sales were half a per cent down on their level in September 1994, the first time they have fallen at an annual rate since 1992.

Supermarkets, which pushed up prices aggressively last month, saw a decline in sales of 1.3 per cent compared with August. However, textile, clothing and footwear stores, which also increased prices, saw a rise in sales of 1.6 per cent.

The effects of a hot summer make it difficult to work out what the implications of the figures are for retail price inflation. "The real test will come in October and November," said Ian Shepherdson, economist at HSBC Markets, "as retailers and consumers play out their familiar cat-and-mouse game."

"Something has to give," said Geoffrey Dicks, UK economist at NatWest Markets. With underlying earnings still rising at only 3.25 per cent in August, consumers were feeling the pinch. Now that retailers were more determined to pass on higher costs, the effect was being felt in declining sales.

Underlying earnings remained particularly modest in the service sector where the rate of increase remains at 2.5 per cent. This was despite further indications that the labour market was more buoyant than had been thought. Vacancies at Jobcentres - which account for about one-third of all vacancies in the economy - rose in September by 10,000 to 193,000, their highest level for more than five years.

Another positive reading of the labour market came from the quarterly Labour Force Survey (LFS), which is based on a sample of 60,000 households. This showed that unemployment, measured according to international conventions, fell by 18,000 in the summer (June to August) compared with the spring (March to May). In the spring it had risen by 28,000. According to the LFS, employment rose by 107,000 during the summer, with most of the new jobs going to women who rejoined the workforce. This was the biggest increase in employment since it began to rise again in mid-1993.

However, three-quarters of the new jobs recorded by the LFS in the summer were part-time. This is much higher than the overall pattern since employment started to rise in the recovery. Part-time jobs account for just under half the total increase in employment since spring 1993.

"The most likely explanation of the drop in unemployment," said Mr Dicks, "is that jobs are being created in the services sector where the low rate of wage increase is pricing people into jobs."

Manufacturing employment fell in the second quarter by 4,000. Further pressure on jobs in the sector may come from the fact that unit labour costs rose by 3.6 per cent in the three months ending August.

Productivity rose by only 1 per cent, its lowest since June 1991.

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