Mixed messages as pay rises but jobs growth slows down

PAY rose at its fastest for three years during May but growth in the number of candidates finding jobs slowed again, sending out mixed messages about Scotland's labour market.

Placements for temporary posts grew at their slowest pace for nine months, while the growth in the rate at which permanent positions are being filled dropped to a four-month low, according to Bank of Scotland's monthly jobs report published today.

The slowdown caused the bank's labour market barometer to edge down from 56.6 in April to 56.5 in May, where a reading above 50 indicates positive conditions in the jobs market.

More than 100 recruitment consultants were polled by economic data firm Markit to compile the index, which is designed to give a snapshot the labour market north of the Border.

Yet Scotland out-performed the UK as a whole for the second month in a row, with the corresponding British figure falling from 56.1 in April to 54 in May.

Donald MacRae, chief economist at Bank of Scotland, told The Scotsman that manufacturers and other export-led businesses were helping to lead the improved jobs performance north of the Border.

Last week MacRae unveiled the most positive results in three years from the business monitor compiled by Lloyds TSB, for which he also serves as chief economist. The report claimed firms were at their most optimistic since the banking crisis.

But MacRae warned that the economic recovery continues to be "fragile" and that the improvement in the business monitor came from a low base.

MacRae said: "We shouldn't think the economy is booming. The recovery is weak and muted. My prediction is still for just 1.25 per cent growth this year."

MacRae added: "May's report on jobs showed a welcome seventh consecutive month of improvement, as the Scottish labour market barometer outperformed the rest of the UK, providing further evidence of Scotland's economic recovery."

The strongest rise in permanent salaries was in Edinburgh. Private-sector employers are starting to increase wages for their staff again - albeit for many at low levels - following up to three years of pay freezes.

The trend comes in contrast to public-sector employers, which are looking at introducing pay freezes as the UK government's spending cuts begin to bite.

A report out today from accountancy firm Ernst & Young's Item Club warned job creation in Scotland's private sector would be slow over the next year.

The think-tank estimates that only 16,000 net jobs will be added this year - just a 1 per cent year-on-year rise.

But the Item Club then expects the pace of growth to accelerate thanks to the services sector, with 100,000 jobs being added by 2015 - an 8 per cent rise on today. Service sector employment should surpass its 2008 peak in late 2013 or early 2014, the report said. By then, half or all people working in Scotland will be employed in the services sector.Dougie Adams, senior economic adviser to the Item Club, said the Scottish jobs market offered some consolation amid worrying data for the economy.

He downgraded his growth forecast for economic expansion north of the Border from 2.2 per cent to 1.7 per cent for this year and from 2.2 per cent to 1.9 per cent for next year.

Adams added: "Manufacturing should continue to show relatively good growth. The same can be said of business services and tourism holds promise, too, boosted as it's been by foreign visitors taking advantage of the lower pound and budget-constrained stay-cationers."