View from City Road: It's looking much better on the jobs front

The modest size of the fall in unemployment in April is less important than the fact that there was any fall at all. The figures are very good news.

Not only is there a seasonally adjusted drop for the third month running, but there is also an increasing amount of other evidence that the decline is not a flash in the pan. Whitehall officials are reluctant to put their heads on the block with a public prediction, but they privately feel unemployment may now be on a downward trend.

What is the evidence? Yesterday's labour market statistics showed that manufacturing jobs had increased for three consecutive months. This is extraordinary, since it is normally one of the last sectors of the economy to show jobs growth. Because of the potential for automation, manufacturing output can increase sharply while manufacturers still shed jobs.

Since output per person - productivity - has been rising sharply, one would expect even a strong rise in output to produce no new factory jobs at all. But the figures show a net rise of 11,000 in the first quarter. We do not yet have an estimate for service employment in the first quarter, but it may well show a sharp bounce.

There are also other signs that the demand for labour is rising. Overtime is up and short-time working is down. The index of average weekly hours rose in the first quarter. It is even a lead indicator of sorts that industrial stoppages are edging up, albeit from a low level.

Companies are also feeling more confident about demand for their products, which probably explains some of the hiring decisions. After the autumn wave of sackings, many companies had to start hiring again to cope with demand.

True, there were small setbacks to retail sales volume in April and manufacturing output in March, both down 0.3 per cent on the month. But these do not undermine the picture of economic revival.

Activity often proceeds in a statistical waltz time of two steps forward and one step back. The three-month on three-month rise is 2 per cent in manufacturing output and 1.6 per cent in retail sales volume.

But the main reason why unemployment may have turned round so early in the business cycle is that labour supply is shrinking. Not only are there far fewer schoolchildren than there were 10 years ago, but more are staying on in education.

Some 66 per cent of 16-18 year olds were in full-time schooling in January 1992, compared with 60 per cent the year before and 55 per cent the year before that. With early and normal retirements proceeding apace, and with a continuing increase in those taking invalidity benefit, the labour force is falling.

None of this means that the unemployment figures will continue to drop inexorably. There is likely to be a month or two of rises. But the good news on joblessness is now genuine. It has also begun to revive consumer confidence, which leapt sharply in the latest Gallup poll. This will in turn underpin the recovery in domestic spending. The upturn now looks solid.