In the midst of the election campaign we can well imagine that economic data are analysed in minute detail by politicians looking to make political capital. Of particular interest are likely to be the labour market numbers. So here we ‘digest’ a few of the latest numbers from the latest ONS labour market release.
The ONS reports that in the three months to February 2010 the number unemployed in the UK rose above the 2½ million mark to stand at 2.502 million. Of these, 61.2% were male and 38.8% female. The rise of 43,000 on the previous three months (i.e. the three months to November) took unemployment to its highest level since the three months to December 1994.
While unemployment rose, employment fell by 90,000 over the same period to 28.824 million. Of those in employment, 53.2% were male and 46.8% female. Employment levels are now at their lowest since the three months to December 2005. The latest unemployment and employment numbers mean that the number of economically active individuals in the three months to February stood at 31.326 million (53.9% male and 46.1% female), down by 47,000 on the previous three months. Therefore the unemployment rate, which is expressed as a percentage of those economically active, has now edged up to 8% (9.1% amongst males and 6.7% amongst females); it was 6.8% a year ago (7.6% amongst males and 5.9% amongst females) and 5.2% two years ago (5.6% amongst males and 4.8% amongst females).
If we look at the number who have been unemployed for at least one year we see a rather worrying trend with a rise of 89,000 over the past three months to some 726,000. This compares with 486,000 in the same period a year ago and 390,000 two years ago. Another potentially problematic trend is the rise in inactivity rates. The proportion of individuals of working age who are now inactive, so neither employed or actively seeking work, rose to 21.5% in the three months to February (17.5% amongst men and 25.8% amongst females), up from 20.7% in the same period last year (16.2% amongst men and 25.7% amongst females).
Finally, part-time employment fell by 30,000 in the three months to February to 7.671 million. However, it rose by 6000 amongst men to 1.880 million. We now observe that 12.2% of men in employment are employed part-time compared with 43.0% of females in employment. Further, of all part-time workers 24.5% – that’s effectively one-quarter – are male, double the share back in 1984 when these numbers were first recorded.
Articles
UK Unemployment hits 2.5 million mark The Wall Street Journal, Nicholas Winning and Ilona Billington (21/4/10)
UK unemployment at 16-year high Financial Times, Brian Groom (21/4/10)
UK unemployment increases to 2.5 million BBC News (21/4/10) )
Unemployment breaks through 2.5 million Guardian, Graeme Wearden (21/4/10)
UK unemployment surges to 15-year high The Times, Grainne Gilmore (21/4/10)
Data
Latest on employment and unemployment Office for National Statistics (21/4/10)
Labour Market Statistics, April 2010 Office for National Statistics (21/4/10)
Labour market statistics page Office for National Statistics
For macroeconomic data for EU countries and other OECD countries, such as the USA, Canada, Japan, Australia and Korea, see:
AMECO online European Commission
Questions
- The current rate of unemployment is 8%. During the downturn of the early 1990s it peaked at 10.7%. What might explain this difference? Do you think the current rate may have now peaked?
- What might explain the rise in inactivity rates? Does this rise have any implications for potential output?
- Does the rise in the number of those unemployed for over a year have implications for our potential output?
- Go back through the commentary: are there any notable gender differences in the figures? What factors might help to explain these?
- In 1984 part-time employment stood at 4.985 million while currently the figure is 7.671 million. Is it possible to explain this growth in part-time employment in the UK?
The consumer prices index (CPI) is used by the government and the Bank of England for measuring the rate of inflation, and in the 12 months to March 2010 it rose by 3.4%. This figure was above the expected rate of 3.1% and well above the Bank of England’s target of 2%. The other major measure of consumer prices, the retail prices index (RPI) rose by even more – by 4.4%.
In order to recover from the recession, the UK economy needs to grow, but as demand begins to rise, this could put further upward pressure on inflation. There are a number of influencing factors that have caused the recent rise in inflation (see Too much of a push from costs but no pull from demand). Large rises in housing, fuel, transport, many household services and food were contributing factors. Many of these factors, however, are thought to be temporary, so it may not be too much of a problem.
And anyway, at least if inflation does continue to rise, it won’t be unexpected!
Articles
UK inflation rate rises to 3.4% BBC News (21/4/10)
A surprise? Definitely. A problem? Possibly. BBC News blogs, Stephanomics, Stephanie Flanders (20/4/10)
Transport costs push UK inflation above 3pc Telegraph, Edmund Conway (21/4/10)
Data
Latest Inflation data National Statistics Online
Consumer Price Indices portal National Statistics Online
Consumer Price Indices, Statistical Bulletin Office for National Statistics
Consumer Price Indices, time series data National Statistics Online
Retail Prices Index: 1948–2010 National Statistics Online
Questions
- Why might the Monetary Policy Committee have to restrict growth to keep inflation manageable?
- What are some of the causes of rising inflation? Why are expectations so important?
- How is the CPI calculated to measure inflation?
- Normally, during a recession, we would expect economic growth to be poor, but inflation to be low and stable. How can we explain both poor growth and rising inflation?
- “Investors know that the UK government has more to gain from an unexpected bout of inflation than almost any other economy.” Why is this?
As noted in the posting about the new high-speed rail link (High-speed rail link is on track), transport issues in the UK are always newsworthy topics and here we go again. This time, though, we look to the sky, where air traffic was halted for five days, from April 14th to 19th. Whilst some flights took off on the morning of the 20th April, further volcanic clouds were expected to ground flights at 7pm. Then, with new scientific evidence suggesting that it would be safe to ease restrictions, flights resumed on 21st April.
A big problem during this period was the uncertainty about how long the disruption might last. And even with the easing of restrictions, there was no certainty that dangerous levels of ash might not return if there was a new bout of activity from the volcano and if winds were unfavourable. One thing that was certain is that it would cost the British and other European economies at a time when they can hardly afford it.
The airline industry is already expected to lose £1.4bn this year and the volcanic cloud is estimated to have cost airlines approximately £130 million per day in lost revenues. The tourism industry has also suffered, although the losses are significantly lower. Countries, such as Kenya, that rely heavily on air freight to transport goods have suffered and businesses have also lost out, owing to cancelled meetings, delays to mail and stranded staff. Customers were angry that they might face extra charges to rebook flights and were having to pay for further accommodation. Whilst the direct effects on economic growth were thought to be only minimal, the long-term effects are uncertain. A drop of between 1% and 2% for European GDP was being suggested.
Airlines have been asking for compensation, in particular BA. After a tumultuous time with strikes, such a disruption could not have come at a worse time. BA has estimated costs of between £15m and £20m per day, due to lost passenger and freight revenues, as well as the need to support passengers trapped abroad.
However, the news was not all bad, especially if you are a rail operator or own a shipping company, as other means of transport have seen a huge rise in demand. Many stranded passengers have railed against the ‘profiteering’ of rail, coach and car-hire companies as prices soared. A case of supply and demand?
Iceland volcano cloud: the economic impact BBC News (19/4/10)
BA seeks compensation for volcano losses Telegraph (19/4/10)
Tourists and economy trapped by the volcano eruption in Iceland Balkans Business News (19/4/10)
Iceland volcano: the impact of the ash cloud on Britain Guardian, James Meikle (18/4/10)
Volcano’s ash cloud causes sporting chaos BBC News (20/4/10)
Travel companies lose millions of pounds with UK tourism next to suffer Independent, Alistair Dawber (20/4/10)
Volcanic ash costing airline £130m a day Channel 4 News (19/4/10)
BA demands government compensation as airlines watch reserves go up in smoke Independent (20/4/10)
British Airway seeks compensation for air chaos (including video) BBC News (19/4/10)
How long will chaos last – and what has it cost? Independent (19/4/10)
Europe counting economic cost of volcano CNBC, Patrick Allen (18/4/10)
How could Europe volcano cloud crisis play out? Reuters, Peter Apps (19/4/10)
Questions
- Who are the main losers from the volcanic ash cloud? Think about businesses and individuals.
- How can other means of transport, such as rail, be seen as a complement and a substitute to air travel?
- How can the economic impact of such disruption be estimated? Can you apply a cost–benefit analysis to this situation?
- Airlines are losing revenue and hence profits. Try illustrating this on a diagram.
- Should the airlines be compensated? If so, how would you propose compensating them? Are there any problems with your proposal?
- If one airline is the sole provider of flights between two locations, does it have a natural monopoly? Explain your answer.
- What is the impact on UK exports and imports? How might the exchange rate be affected?
- Does anyone gain from the volcanic ash cloud? Explain your answer.
The OECD published its latest interim assessment of the world economy on April 7. This showed a world gradually bouncing back from recession, with growing GDP (albeit at variable speeds in different countries), rising industrial production, increasing business confidence, a stabilising of financial markets, an easing of credit conditions and yet continuing low inflation.
The UK is forecast to have an annualised rate of growth of GDP in quarter 2 of 3.1%. This is the second highest of the G7 countries, behind only Canada. This would seem like good news – an economic spring for the UK.
Despite continuing growth in the OECD countries, in most of them recovery is fragile. The OECD thus recommends caution in removing the stimulus measures adopted in most countries and hence caution in embarking on measures to cut public-sector deficits. As the report states:
Despite some encouraging signs on activity, the fragility of the recovery, a frail labour market and possible headwinds coming from financial markets underscore the need for caution in the removal of policy support. Central banks have already begun to rein in the exceptional liquidity stimulus injected during the recession. Further action in this area will need to be guided by financial conditions. The normalisation of policy interest rates should be carried out at a pace that will be contingent on the strength of the recovery in individual countries and the outlook for inflation beyond the near-term projection horizon. As for fiscal policy, the sharp increase in government indebtedness in the OECD area during the downturn calls for ambitious, clearly communicated medium-term consolidation programmes in many countries. Consolidation should start in 2011, or earlier where needed, and progress gradually so as not to undermine the incipient recovery.
The following webcast from the OECD presents the report.
Webcast
Interim Assessment OECD, Pier Carlo Padoan, OECD Chief Economist (7/4/10)
Report
Portal to report and webcast OECD
What is the economic outlook for OECD countries? An interim assessment OECD, Pier Carlo Padoan (7/4/10)
Articles
Economy set to speed up and beat UK’s rivals, says OECD Independent, Sean O’Grady (8/4/10)
Economy poised for rapid expansion Financial Times, Norma Cohen and Daniel Pimlot (8/4/10)
OECD sees slower growth in US, Europe, Japan Sydney Morning Herald (8/4/10)
UK business confidence ‘hits four-year high’ BBC News (12/4/10)
British companies confident of recovery but need investment, BDO warns Telegraph, Angela Monaghan (12/4/10)
Questions
- What are the main findings in the report?
- What are the policy implications of the findings?
- What are the implications of developments in financial markets? What are the possible ‘headwinds’?
- What factors could threaten the recovery of the UK economy?
As the global recession began to take hold during 2008, so many commodity prices plummeted. Oil prices fell from over $140 per barrel in mid July 2008 to around $35 per barrel by the end of the year (a mere quarter of the price just 6 months previously). From early 2009, however, prices started rising again and have continued to do so during 2010. By mid April 2010, the price of oil had risen to $85 per barrel.
And it’s not just oil prices that have been rising. The prices of metals such as copper, nickel and zinc have been soaring. Since the beginning of February 2010, copper prices have risen by 18%, zinc prices by 20% and nickel prices by 46%. As the article from the Independent states:
The Office for National Statistics said that the input price index for materials and fuels purchased by the manufacturing industry rose 10.1 per cent in the year to March and rose 3.6 per cent between February and March alone. The ONS added that prices of imported materials as a whole, including imported crude oil, rose 4.4 per cent between February and March.
Much of the explanation for this has been the global recovery. But while raw material prices have been rising, grain prices have been relatively steady and recently have fallen. So how can this be explained? The answer, as always with commodity prices, lies with demand and supply, as you will see when you read the following articles.
Articles
Commodity prices fuel inflation spike Independent, Sean O’Grady (10/4/10)
Interest rates may have to rise sooner after figures point to inflation rise Guardian, Katie Allen (9/4/10)
Pound rises as UK producer prices hint at inflation BBC News (9/4/10)
Petrol price hits record high BBC News (8/4/10)
China commodity imports soar despite high costs Reuters (10/4/10)
March Output Price Inflation Highest Since Nov 08 Marketnews.com (9/4/10)
Spring season: What is pushing up the price of copper and other base metals? The Economist (8/4/10)
Factory gate price rise leads to fear of inflation Financial Advice (9/4/10)
Corn Falls as Warm, Dry Weather Will Aid Planting in the U.S. BusinessWeek, Jeff Wilson (8/4/10)
Wheat Futures Fall as U.S. Exports Slump, Global Crop to Gain BusinessWeek, Tony C. Dreibus (9/4/10)
Commodities: Chinese imports defying commodity−price rally for now FZstreet.com, Danske Research Team (12/4/10)
Data
Commodity prices can be found at the following sites:
Commodity price data BBC News: Markets
Commodity prices Index Mundi
World Crude Oil Prices U.S. Energy Information Administration (See, for example, Brent Crude Oil Prices)
UK factory gate prices can be found at:
Latest Producer Prices Office for National Statistics, and
Producer Prices portal Office for National Statistics
Questions
- Use supply and demand analysis to explain why raw material prices have risen so rapidly. Illustrate your answer with a diagram.
- Use supply and demand analysis to explain why grain prices have fallen. Again, illustrate your answer with a diagram.
- What is the significance of income elasticity of demand and price elasticities of demand and supply in explaining the price changes in questions 1 and 2?
- How would you estimate the likely effect of a 1% rise in (a) general raw material prices and (b) factory gate prices on the rate of consumer price inflation?
- Why has the price of petrol risen above the level of July 2008, given that oil prices now are only about 60% of those in 2008?
- Why has a rise in factory gate prices led to a rise in the sterling exchange rate?
- If inflation rises as a result of a rise in commodity prices, what type of inflation would this increase in inflation be? Does the answer depend on what caused the rise in commodity prices?