Latest employment data tells us little about economy post EU referendum

Unemployment is a lagging indicator, but there are worrying signs that it could be poised to rise if you keep an eye on company trading updates such as the one issued by Travis Perkins

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“UK jobless rate steady at an 11-year low despite Brexit” 

That’s a summary of what you’ll have seen in some of the headlines. And it misses the point.

It's true that the latest official figures concerning employment and unemployment look good. But the Office for National Statistics’ data is a lagging indicator.

Firing people is expensive. It's certainly disruptive. It’s the last thing businesses want to do unless they absolutely have to. So they tend to hang fire until they’re pretty sure the economy is moving to a place where they have to act. Conversely, employment is one of the last things to recover after a downturn because companies won’t start hiring until they’re sure things are picking up and they need extra people to capitalise. 

The numbers are particularly problematic in this country because of the eccentric way the Office for National Statistics publishes the data. The most commonly quoted numbers come from a three month rolling average. There is a monthly figure provided but economists will tell you that it jumps around a lot, partly because the sample size of 10,000 used to produce the nationwide numbers really isn’t that big. 

So it pays to be doubly careful when attempting to draw conclusions from these numbers. Past jobless data is no guide to future economic performance and it would be quite wrong to use the ONS's numbers to infer that the Brexit vote has had only a limited impact. 

If you want a better guide to the way things are going keep an eye on the corporate trading statements that have have been rolling through. You’ll often see them talking about the “uncertain UK outlook“. When companies are uncertain about the way things are going they tend not to hire new people, and they often don’t replace staff when they leave. If that uncertainty continues, they start thinking about reigning in costs, and then firing people. 

Travis Perkins provides a good example of what I’m talking about. It issued a trading statement on the same day as the latest ONS data. If you want to look at the shape of things to come I’d point you in its direction. 

 The builders merchant is closing more than 30 branches, putting 600 jobs at risk, and blaming “uncertainty” regarding the UK outlook for the move. 

Of course, it will take some time for the people who lose their jobs with the company to appear in the figures,  if they’re caught by the ONS’s survey of course. But if there are enough Travis Perkins' doing the same thing they will appear eventually. 

I’ll leave you with a quote from the ever readable Nick Bubb, who produces the well regarded “Daily Retailer” newsletter. He says this: “If Travis Perkins is feeling uncertain about the outlook, then we should all take notice, given its excellent forecasting record.”