Royal Bank of Scotland : Economics Weekly - All about jobs

The UK's unemployment rate fell again in the three months to March, reaching 5.5%. That's a fall of more than a percentage point during the last year. Over half a million more people have found jobs and consequently, at 73.5%, there's a record proportion of people aged 16-64 in work. As the UK-wide unemployment rate falls the regional differences begin to loom larger. Four areas of the UK now have a jobless rate of less than 5%, all of which cover the South or East of the country. At the other end unemployment in the North East is up at 7.5%. However, the good news is that in the last 12 months it fell further here than anywhere else.

Jobs were up and so was pay, with wages up 1.9% compared with a year ago. Inflation is still down at zero so real earnings growth continued to improve. Some industries are boosting wages as they struggle to recruit and retain staff. For example, average wages in hotels & restaurants rose by 4.7% over the last year. It's no coincidence that this sector also has the highest rate of unfilled vacancies of any in the UK, with 79,000 jobs waiting to be filled.

The Bank of England's Inflation Report set out the Bank's view of the economy, focusing once again on the amount of "slack" in the labour market. As this slack falls pressure for staff builds and inflationary pressures emerge, prompting interest rates to rise. Yet thus far the economy hasn't played ball. While the economy certainly has less slack, inflationary pressures are no-where to be seen and markets don't expect a rate rise for another year.

Output in the UK's production industries rose by 0.7%y/y in March. Electricity and gas led the way, up 4.9%. Manufacturing grew more modestly, by 1.1%. The oil industry's travails are apparent in the 2.6% fall in mining and quarrying production. Stepping back from the here and now, the retreat of the makers is apparent. Manufacturing output is 6% below its level in 2000. Something similar is true in most rich countries where services account for a rising share of activity. We shouldn't expect that to change much.

UK construction output fell by 1.1%q/q in the first three months of the year. There was growth in factory and infrastructure building but nothing else. House building took a dive, with construction by publicly owned companies falling by 11.1%q/q. That's the biggest single quarterly drop since Q1 2001. But it wasn't all bad news. Construction output grew in March, suggesting some much-needed signs of life in early spring.

Eurozone economic output expanded by 0.4% in the first three months of the year. On current estimates that's faster than either the UK or the US. And contrary to popular belief it's not a sudden reversal of fortune. Economic momentum in the once moribund eurozone has been slowly building over the second half of 2014. Particularly noteworthy is the Spanish economy, which expanded by 0.9% in Q1, while even Italy managed to grow by 0.3%.

Recent data from the US present a confusing picture. The job market is motoring along nicely and business confidence is healthy. But growth in Q1 was almost non-existent and last week we learned that retail sales were flat m/m in April. What's more, consumer confidence has dipped sharply. At the start of the week markets reckoned there was a better than evens chance of the Fed hiking rates in December. With these poor incoming data it's no surprise that by the end of the week it was less than 50:50.

China cut its benchmark interest rate for the third time since November 2014 in the government's latest effort to keep growth from slowing too sharply. Although attempts are being made to make credit cheaper, the government is also trying to suppress lending channels that exist outside the country's banks - China's 'shadow' banking system. While credit expansion has slowed, it's still up by 12%y/y. But the economy appears to have taken a hit. New property construction fell by 17%y/y in April and total investment is growing at its slowest pace since 2000. Meanwhile industrial production growth remains weak by China's standards at just 6%y/y. Achieving success in the twin aims of reducing credit growth while managing economic growth is difficult, for China as much as it would be for any country.