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Real U.K. Unemployment is 5.5 million, the Jobless Economic Recovery?

Economics / UK Economy Apr 22, 2010 - 01:15 AM GMT

By: Nadeem_Walayat

Economics

Best Financial Markets Analysis ArticleThe latest U.K. Unemployment and claimant count data released Wednesday show a confusing mixed picture which allowed both Labour and the Conservatives to broadcast election propaganda in their own favour.

  • U.K. Unemployment ROSE to 2.502 million for January 2010, which elevated the Jobless rate to 8%
  • U.K. Benefits Claimant Count (seasonally adjusted) FELL by 33,000 to 1.54 million for Feb 2010.

UK Unemployment Forecast Fulfillment

Wednesday's data completes my UK unemployment forecast as of October 2008 (July 08 data) that forecast UK unemployment to hit 2.6 million by data released during April 2010 in advance of a May 2010 General Election as illustrated by the below graph, and against consensus forecasts by mainstream press and academic economists that ranged to between 3 and 3.4 million i.e. nearly a whole million off target!

UK unemployment - July09

Benefit Claimant Count has Risen NOT Fallen

Whilst the mainstream press and the Labour party are running with the claimant count figures as a positive development. However as the earlier graph illustrates there has been NO DROP IN BENEFIT CLAIMAINTS, The data that is being pushed in the press is the seasonally adjusted variety, the REAL claimant count figures have RISEN from 1.654 million to 1.657 million for February 2010 data.

UK Real Unemployment Rate is 5 million

Whilst the headline UK Unemployment data of 2.502 million has come in near 1 million below academic economist expectations. Which at 8% of the workforce is remarkably low when one considers that past milder recessions had seen UK unemployment peak at much higher levels i.e. in the 1980's at 12% and in 1990 at 10.8%, therefore on face value the Labour government appears to have achieved a minor miracle by UK unemployment peaking at only 8% in the midst of the worst recession since the Great Depression.

However, I have long questioned the accuracy and validity of the official unemployment data which over several decades and much manipulation by successive governments has been tweaked many hundreds of times to under report true unemployment for political purposes. Current official unemployment stands at 2.502 million which is against the total recorded as economically inactive of working age that stands at a new all time high of 8.159 million which illustrates the true extent of failure of the Labour government to manage the potential of the work force during the boom years as illustrated by the fact that 80% of the 2.1 million jobs created under Labour went to foreign workers and therefore did nothing to address the true level of UK unemployment that contained a hidden ticking social security financing time bomb that is now exploding.

UK Real Unemployment

During the Conservative boom cycle, real unemployment fell from the 1983 crisis high. However the same did not take place following the early 1990's recession where real unemployment failed to not only fall but steadily rose under Labours boom years as the benefits culture took hold and hundreds of thousands of foreign workers performed the jobs that unemployed Britain's were not prepared to do as they were far more comfortable living off the tax payer in Labours benefits culture.

Whilst not all of the 8.16 million economically inactive should be seeking work, however the figure does imply that at least 3 million of the 8 million form the core of the the benefits culture.

Therefore the 3 million that choose not to work but instead prefer to rely on tax payer funded benefits added to the official 2.5 million unemployed results in a total UK unemployment count of 5.5 million. Which is more in line with the recession experience of other similarly in-debted and structured European countries such as Spain that has an unemployment rate of 19%.

This also suggests that even if the headline unemployment rate improves over the coming months (which I expect it to do for a few months at least), the real rate of unemployment as recorded by those economically inactive will remain stubbornly higher for many years, especially in advance of the 1/2 million public sector job cuts required to shrink the budget deficit.

The £40 Billion Benefits Culture

Social security benefits cost Britain £106 billion a year, at least £40 billion of which is spent on those that could work but choose not to work. Therefore the next government needs to take urgent action to address this culture of "won't work" across Britain's housing estates which breeds generations of perpetual cradle to grave benefit claimants who's strategy is to maximise the amount of benefits they can claim which means by bringing as many children into the world for which they provide little parenting towards which results in gangs of feral youth roaming the estates and city centres generating crime, nuisance and fear amongst the rest of the population and then perpetuating the benefits culture into the next generation resulting in an ever increasing burden on the economy.

One way of getting to grips with the benefits culture is to reintroduce national service so that all youth who are not employed or in higher education are taught discipline, practical skills and the work ethic.

Academic Economists Worthless Economic Forecasts

Academic economists that populate the mainstream press had collectively converged during 2009 into the consensus view that UK unemployment would soar to between 3 and 3.4 million by the time of the next general election (May 2010). Therefore they have proved to be wrong by nearly 1 million, and as usual without any consequences, for this or any of the other worthless projections on the economy as they still contemplate a double dip recession whilst this Friday's data will show a strong economic bounce in Q1 2010. And not forgetting yesterdays inflation spike which is inline with the inflation mega-trend analysis and forecast whilst the academics still argue the case for non existant deflation.

Academic economists producing models in ivory towers detached from the real world failed to realise or comprehend the consequences of both government employment measures such as the 1/2 million of public sector jobs created during the recession, student and quango run training programme's and the change in employer and employee behaviour where employees agreed to pay freezes, pay cuts and 4 day weeks so as to enable the maximum number of workers to be retained in employment that explains the 1 million disparity between academic economic models and the real world.

Despite clear evidence of the above during early 2009, academic economist still stuck to theoretical models that failed abysmally as the following selection illustrates, and also explains why the Bank of England remains clueless as to the real direction of the economy especially evident in Tuesdays inflation spike (20 Apr 2010 - UK Inflation Soars CPI 3.4%, RPI 4.4%, Bank of England Forecast Wrong as Usual )

European Commission - May 2009 - It expects UK unemployment to rise to 9.4pc by 2010 leaving 3m workers jobless.

British Chambers of Commerce - April 2009 - Last month, data confirmed that the total number of people out of work surpassed the 2m mark in the three months to January, taking the official unemployment rate to 6.5pc – the highest since 1997. The BCC believes the total could hit 3.2m by the third quarter of next year.

Bank of England - Blanchflower - April 2009 - Warned unemployment was likely to top 3 million by the end of the year and there was a 'good chance it could go much higher still'.

CBI - Feb 2009 - The UK’s leading business group predicts the recession, which began in the third quarter of 2008, will last throughout 2009. The economy is expected to contract by 3.3 per cent and unemployment will reach close to 2.9 million by the end of the year.

UK Unemployment and the Election Economic Recovery

Labour will shortly be playing its Election Ace which will be an economic growth surprise to the upside on release of UK GDP Data for the 1st quarter of 2010 on 23rd April as per the forecast (31 Dec 2009 - UK Economy GDP Growth Forecast 2010 and 2011, The Stealth Election Boom ) and in depth analysis in the Inflation Mega-Trend Ebook (FREE Download). Which is set against the mainstream press / academic economists continuing debate of a potential double dip recession.

A strong economic recovery would imply that the UK unemployment picture should improve over the coming months with a potential drop of as much as 200,000. However this trend faces two problems :

1. Spare Capacity - As mentioned earlier, many workers are being kept under-employed i.e. working 4 day weeks, this means as the economy recovers the slack will be taken up by existing workers.

2. Public Sector Job Cuts - In the region of 1/2 million public sector jobs will go over the next 18 months in an attempt to bring the huge budget deficit under control.

Which suggests that UK unemployment will start to rise again to a new high. How high depends on the nature of the next government as neither Labour nor Conservatives have made their true intentions on the budget deficit reduction clear.

The Inflation Mega-Trend

The full implications of the unfolding inflation mega-trend including forecasts trends for major markets for many years are contained within the NEW FREE Inflation Mega-trend ebook , which includes analysis and precise forecasts for:

  • Interest Rates
  • Economy
  • Inflation
  • Gold & Silver
  • Emerging Markets
  • Stock Markets
  • Stock Market Sectors and Stocks, including ETF's
  • Natural Gas
  • Agricultural Commodities
  • House Prices
  • Currencies
  • Crude Oil

The 109 page ebook is being made available for FREE, the only requirement for which is a valid email address. To find out how to protect your wealth against the inflation mega-trend get your free copy of NEW Inflation Mega-Trend Ebook NOW.

Source: http://www.marketoracle.co.uk/Article18838.html

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-10 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on UK inflation, economy, interest rates and the housing market and he is the author of the NEW Inflation Mega-Trend ebook that can be downloaded for Free. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 500 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Raj
22 Apr 10, 05:01
Double Dip

Hi Nadeem,

Thanks for the article, just a quick question,

Given the fact that the government will have to cut public sector jobs and unemployment is still an issue (fragile economy), how come you still believe we wont have a double dip recession? Also will you be releasing a UK property forecast soon?

Thanks


John
23 Apr 10, 03:39
reccomendation

Hi Nadeem,

Would you mind if I reccomend your articles to my local

tory mp regarding the british economy, maybe he could

forward them to the powers that be, as you seem to be

one step ahead yours waiting for a pull back reader

john

ps Did you reed john mauldin outside the box this week


Nadeem_Walayat
23 Apr 10, 03:40
UK economy

Hi John

Feel free to use the articles as you see fit.

Outside the box -

Rising interest rate expections would support sterling, hence its tough to see a sterling

collapse.

The key for britain is in cutting public spending, that is a debt blackhole.

the proposals on ending corporate interest deductibility sound interesting as that will

give a disincentive to borrow and accumulate debt.

Regards.

Nadeem Walayat,


Mark
23 Apr 10, 17:06
Sterling

Nadeem,

You mention its hard to see a sterling collapse but your range for sterling this year was 140-155. Do you still see this range holding?

Mark


Nadeem_Walayat
23 Apr 10, 17:39
Sterling Analysis

My forecasts always remain in force until the next indepth analysis, current forecast is as of Dec 2009 for Sterling to stay within a range of about 155 to 140 on break below 157 (which occured early Feb) resulting in a sterling low of about 1.48.

There is a lot of volatility in the market due to obvious reasons, even if sterling spiked as high as 160, I still expect it to target 1.40 this year.

I will seek to do an indepth update within the next 3 weeks.


Nadeem_Walayat
23 Apr 10, 17:41
uk double dip

Double dip - No. The reason is based on the sum of all analysis included in the ebook and posted since.

Housing forecast - about 2 months away,


Raj
26 Apr 10, 06:08
uk double dip

Hi Nadeem,

Thanks for your response,

After reading all your articles, I firmly agree with the prediction of no double dip from a stock market perspective.

However property plays a major part in this theory, since it was property that pulled us into recession. My question: although you havn't done a property forecast as of yet i presume there cant be a fall inmind, otherwise we would probably see a double dip, as reposessions etc will pull us down into another recession?

Thanks

Raj


Nadeem_Walayat
26 Apr 10, 06:59
uk house prices

Hi

I don't know what the conclusion will be until ALL of the analysis is complete.

Best

NW


Darren Sharrocks
17 Nov 10, 07:37
Benefits Culture

you say 3 million people do not want to work, on what basis do you make this assumption? I mean its a big brush to paint for lots of people who you say do not want work, from what i have seen in the data, of the 3 million you say do not want to work, 99.9% would want a job. Also this so called benefits culture does not exist, rightly you say this propaganda use by conservatives and labour et al on this issue, but are you not guilty of using this assumpton as propaganda as well? After it is tory asummption and now has been used by new labour etc. The latet figure say there are 9.28 million inactive people in the uk, with 2.4 offically unemployed, out of this 1.4 millin jsa claimants the figure fell, this is also true of single parents who were claiming, this figure fell as well but was not use by the governemnt or the media, because of couse it would under mind the argument that people on the dole are lazy etc. The shccking figure of 9.28 million shock us all but its not due to people living off benefits but due to governemtns selling off our industries to make a quick profit and replacing jobs lost with insecure temp jobs and part time work. The new figures of 4,53000 job vacancies are made of up of part time work and temp jobs, so if we go by your argument if all them jobs are taken up, because really the unemployed a lazy then where are the other 5 million going to find work. Also are benefits are so low, it is hard to live on them never mind find a job, if you do not have the money for travel etc.

Darren Sharrocks


Nadeem_Walayat
17 Nov 10, 10:01
Benefits Culture

80% of jobs created under labour went to foriegn workers as a consquence of the benefits culture, basically far too many people (approx 3 million) Moan about not having a job, but when a job is offered do not want to do it because they live in a fantasy land where they expect to walk into a top paying job, so instead prefer to live a life on easy benefits. Therefore the solution is to CUT benefits so as to force the lazy to work, Jobs that foriengers are eager to do.

The day of reckoning has arrived, the country can no longer afford the luxury of keeping over 8 million on benefits for life.

It's good for those that are stuck on benefits for life and good for the country!


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