UK Unemployment, Claimant Count Drop Surprises Academic Economists

By: Nadeem_Walayat

This is the next in a series of analysis as part of my unfolding inflationary mega-trend scenario towards the formulation of 2010 forecasts for inflation, interest rates and economy. I aim to complete the whole scenario and implications of before the end of December which will be published as an ebook that I will make available for FREE. Ensure you are subscribed to my always free newsletter to get the latest analysis in your email box and check my most recent analysis on the probable inflation mega-trend at http://www.walayatstreet.com

UK Unemployment, Claimant Count Drop Surprises Academic Economists

The UK unemployment forecast as of October 2008 (July 08 data) forecast UK unemployment to hit 2.6 million by April 2010. The actual data to date of 2.49 million to Sept 2009 is inline with this trend, with unemployment benefit claimant count registering a small fall from 1582 to 1569 for November. The moderating unemployment data has surprised academic economists as it is much milder than their economic models suggest it should be by this point. However the data is strongly indicating to me of a strong STEALTH Economic Recovery underway which implies headline data is near an imminent peak and therefore should start to fall early 2010.

Academic economists that populate the mainstream press and "think tanks" have collectively converged during mid 2009 into the consensus 2009 that UK unemployment would soar to between 3.2 and 3 million by the time of the next general election (May 2010). Now with the slowdown of the unemployment growth in the face of a strong economic turnaround in the fourth quarter these same institutions will be busy revising forecasts for UK unemployment much lower in the coming months.

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.

In an earlier article I explained why academic economists are nearly always destined to get it wrong because there is no real mechanism at work to induce accuracy i.e. academic economists rarely if ever put their own money where their mouth is and thus continue to produce theoretical based analysis and projections rather than market based analysis that actually does have to be accurate else money will be lost in the process of monetizing on the analysis through investment and trading decisions.

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 time to under report true unemployment for political purposes. Current official unemployment stands at 2.49 million for September data release against which the total recorded as economically inactive of working age stands at 7.99 million which in my opinion is reflective of the true rate of unemployment as the below graphs illustrate.

The real unemployment trend clearly shows a sideways trend channel of between 8 million and 7.8 million, Having hit the upper channel it is now strongly suggestive of having peaked and targeting a trend back towards the lower end of the channel i.e. projecting towards a decline of 200,000 during 2010.

In conclusion the headline UK unemployment rate of 2.49 million is just a stone throw away from the 2.6 million target which suggests little upside momentum left in the unemployment data and therefore indicative of an imminent peak and decline unemployment statistics to be announced during Q1 2010, which therefore confirms my view of a much stronger than expected economic recovery and therefore has much higher inflationary implications as well as political implications of improving Labours election prospects.

UK Inflation Forecast 2009

Deflationary forces as a consequence of the the bursting of the asset bubbles has fulfilled the deflation forecast for 2009 as per the original analysis of December 2008 - UK CPI Inflation, RPI Deflation Forecast 2009 that forecast Deflation into Mid 2009 targeting RPI of -1.2% and CPI of +0.9% to be followed by an uptrend into year end back into RPI inflation of +0.9% and CPI of +1.6% as illustrated by the below graph.

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Source: http://www.marketoracle.co.uk/Article16070.html

By Nadeem Walayat
http://www.marketoracle.co.uk

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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 the housing market and interest rates. 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

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