Fall in unemployment and stronger retail sales raise hopes

The economy was surprisingly buoyant in November, figures on unemployment and retail sales suggested yesterday, writes Diane Coyle. Unemployment fell to its lowest level since May 1991. Retail sales volumes grew by more than expected after a lacklustre performance in recent months, although the underlying trend remained subdued.

However, there was no sign that falling unemployment has put pressure on wages. Economists expect the higher recent level of pay settlements to raise earnings growth before long, but underlying average earnings growth remained unchanged at 3.25 per cent in October, and in manufacturing was the lowest since the series began 15 years ago.

City economists are optimistic about the retail price index due today - and available to the Chancellor and Governor yesterday. Kevin Darlington, an economist at Hoare Govett, said: "The labour market is continuing to give the signals we would hope to see at this stage of the recovery."

The number claiming unemployment benefit fell by 22,400 to 2,244,500 - 734,000 below its peak in the recession. Unemployment was lower in all regions. Yesterday's labour market figures also provided other evidence of encouraging strength. The number of vacancies available at Jobcentres last month reached its highest level since May 1990, while the number of new vacancies posted was a record.

There was an increase of 13,000 in employment in manufacturing industry in October, mainly in the food, drink and tobacco sector, after three successive monthly falls. The number of manufacturing jobs was 55,000 higher than a year earlier.

Figures for the total workforce in employment showed a perplexing fall of 22,000 in the three months to September. But as this was almost entirely due to a drop in self-employment, many economists expect this to be revised.

Last month brought an increase of 0.6 per cent in the volume of retail sales, the biggest rise by far since February. Taking the latest three months, a better guide to trends, the rise was only a modest 0.1 per cent compared with the previous three months.

Richard Brown, deputy director general of the British Chambers of Commerce, said the figures were nothing to get excited about. "The position in the high street remains relatively subdued. Much as we would like to see consumer confidence picking up, we are not seeing the beginning of a consumer boom."

The biggest factor behind November's advance in sales was a 2.7 per cent recovery in sales of clothing and footwear, probably mainly due to the onset of normal winter weather after a mild October.

Sales of household goods and department store sales also improved in November. Sales at food stores were flat, and have fallen 0.9 per cent in the latest three months.

Ciarn Barr, an economist at Deutsche Morgan Grenfell, said this pattern probably reflected consumers' sensitivity to price increases. Food prices have been rising faster recently.