The UK jobs market is booming – what does that mean for investors?

Spark Global Limited reports:

Unemployment in the UK is back to pre-pandemic levels, employers are desperate to hire more staff, and wages are rising. John Stepek looks at what that means for your money.

I realise you won’t need any further incentive than that to share your thoughts, but just in case, if you fill in our survey, you’ll also get the chance to win a £50 Amazon voucher.

And now to this morning’s news – the latest employment data.

One thing’s for sure, the UK’s labour shortage isn’t going away any time soon.

The UK jobs market is roaring ahead

The latest UK employment figures came out from the Office for National Statistics (ONS) this morning. Not to put too fine a point on it, they were extremely strong.

In the three months to July, the unemployment rate fell to 4.6%, from 4.7% before. And during August, according to more timely data from HMRC, payrolls grew by 241,000. That puts us back to pre-pandemic levels.

The employment rate (that is, the proportion of people aged between 16 and 64 who are in work) rose to 75.2%. That’s still lower than before the pandemic and the shutdown (when it was sitting at 76.5%) but it’s higher than it was last quarter.

And the inactivity rate – that is, people who are of working age, but aren’t actively seeking work for various reasons – is sitting at 21.1%. That’s higher than pre-pandemic (when it was 20.2%) but it’s again fallen from the previous quarter.

Meanwhile, employers are desperate to hire more people. The number of job vacancies rose to 1.034 million in the three months to August. That is the first time ever that the figure has gone above one million.

In short – more and more people are returning to work; the proportion of “discouraged” workers is falling all the time; and employers are still really struggling to find people.

Add that all up, and it’s no wonder that wages are shooting up. The ONS finds that weekly earnings (including bonuses) rose by 8.3% in the quarter to July 2021, compared to last year. Excluding bonuses, the figure was 6.8%.

Now, we have to take those figures with a big pinch of salt. They are distorted by the fact that lots of people lost their jobs (or went on reduced hours) a year ago. In other words, the average individual isn’t getting an 8% pay rise (which is one reason why pensioners aren’t getting one this year either). Instead, we’re seeing a big rebound whereas at the same time last year we saw a collapse. This is known as a “base effect”.

However, that said, after carrying out various adjustments, the ONS still reckons that underlying annual earnings growth is coming in at between 3.6% and 5.1%. Even at the lower end of that range, that’s significantly above the current inflation rate.

So we don’t even need to reach for the “anecdata” stories about employers offering £1,000 sign-on bonuses and the like to conclude that wage growth is strong.