Economy

RBS reads into unemployment figures

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Economy
Written by Gary Howes   
Thursday, 07 May 2009

RBS believes the recession has prompted more people into the labour market - exacerbating the unemployment level.

 

RBS (LON:RBS) economists have said that they believe that the sharp increase in unemployment associated with the onset of the current recession has been driven by more people looking for work - these being people who previously weren't looking for work.

The reasons for this phenomenon is explained as follows:

"The number of people in work has fallen 274K from its peak in May last year, while the ranks of the unemployed have expanded by almost half a million.

"This is unusual - in a recession, as workers lose their jobs, many leave the labour market (often because a partner is still employed or to pursue other opportunities like further education).

"This time around the opposite has happened - as the recession deepens, more people have entered the labour market. The increase in unemployment has thus had limited impact on retail spending because, statistically speaking, nearly half of the newly unemployed were not working beforehand, and most people who had jobs before still have them."

 

Deterioration ahead


While the analysis of unemployment stats could put some minds at ease RBS warns that the lag effect of employment in the economy will strike:

"Neither retail spending nor employment can hold out indefinitely. Because labour market indicators lag wider economic conditions,
the substantial contraction the economy has experienced over the last six months is only starting to be felt.

"In Q1 employers tried to retain workers, reducing costs by reducing working hours or making jobs part-time. But firms themselves are struggling to hang on: insolvencies increased almost 60% on the year, reaching their highest level since the end of the 1990’s recession.

"With external demand still weak, the severity of the recession will push more businesses into bankruptcy, reducing job prospects. Cracks are also showing in the retail market: overall spending has held up but discretionary spending and big ticket purchases are already in decline."

 
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