Nevill Boyd Maunsell: Rising unemployment bad news for green shoots
Time was when the stock market attracted unflattering headlines by shooting up on news of rising unemployment.
It made easy copy. The market, we used to be told, was populated by hard-faced grinders of the poor who celebrated job losses, supposing that fewer “overheads” on the payroll left more money for company profits.
The real reason was, in days when jumpy Chancellors set interest rates, they could be trusted to cut the cost of borrowing at the first serious whiff of unemployment. And markets love the prospect of falling interest rates.
It is not like that any more. Yesterday, a nasty surprise from bad American unemployment numbers sent Wall Street into a spin. London followed with a 106-point hit on the Footsie.
Interest rates are so low that there is no point in cutting them. Unemployment is the human measure of recession. In terms of hard economics, it means less spending power, more Government debt and draining confidence – arid news for green shoots.
Economists call it a “lagging indicator”. It takes a while to build up after a recession has taken hold and lingers into the eventual recovery. A lot depends on how fast individuals who lose their jobs find new ones and the state of their finances when the blow falls.
An Equifax survey among the 26-40 age group found that 32 per cent had no savings at all and 59 per cent said they could survive financially for less than three months if they lose their jobs. Only 36 per cent of Midlanders are using low interest rates to pay off debt, fewer than anywhere else in Britain.
Wall Street was spooked yesterday by news that the US lost 467,000 jobs in June, 100,000 more than green-shoot-minded economists had predicted. The day was not without a shoot of its own – US factory orders picked up nicely in May – but nobody wanted to know.
America’s unemployment has reached 9.5 per cent, more than any time since August 1983, before the Reagan boom took hold. Coincidentally, that precisely matches the rate in the eurozone.
So far, Britain is faring less badly. By the old-fashioned count of those out of work and claiming benefit, we had 1.54 million unemployed in May, more than double the number a year earlier, but still a seemingly acceptable 4.8 per cent.
The International Labour Organisation estimate, including those “on the sick” and people who have despaired of job-seeking, makes the total 2.26 million. That is 7.2 per cent of the workforce – a touch short of the percentage in the US and Europe. But we still have this year’s school-leavers and graduates to try their luck on the labour market.
It is not only the stock market that needs to be wary of this lagging indicator.
Nevill Boyd Maunsell