Bill Jamieson: Glimmers of hope amid the gloom

So the latest news of a 19,000 fall in unemployment in Scotland to 204,000 over the latest three-month period is welcome.

What will give First Minister Alex Salmond particular cheer is that Scotland’s unemployment rate has now dipped to 7.6 per cent – below the UK average of 7.8 per cent. Given the atmosphere of mediaeval siege that has characterised exchanges in Westminster and Holyrood over recent weeks, David Cameron and Alex Salmond are brought together in an alignment of the improbable: they will have common cause in scoring the obvious political points off their opponents.

But do the latest figures reliably point to better prospects? And is Scotland really closing the gap with the rest of the UK in terms of economic performance?

Overall across the UK, the figures look encouraging, considering that business confidence remains subdued and the latest manufacturing purchasing managers index was truly dire. Most commentators believe that the third quarter bounce in GDP was a false dawn and that the economy overall has contracted in the final three months of the year.

However, the figures also show that across the UK unemployment is 128,000 lower than a year ago while the timelier claimant count measure of unemployment fell by 3,000 between October and November. And the number in employment rose by 40,000 over the three months to October, compared with the previous three months.

How fares Scotland? A closer look at the data suggests we may have problems ahead and that the gap in labour market performance between Scotland and the south east of England may be widening. Given the different characteristics of the two areas, such a comparison may not seem to matter much. After all, differing rates of employment and unemployment have long been a feature of the UK economy.

However, with the prospect of low to no growth here for another two years, on top of the miserable performance since the early 2009, Scotland could be set for a loss of skilled labour and capital as the economy here marks time while the south-east starts to gain traction. This opens the prospect of the labour market in the south-east in need of inward migration, given that the jobless rate there is already down to 6.3 per cent and the employment rate, at 74.7 per cent, seems to defy the hand-wringing about a “triple dip” recession. In Scotland the figure is 70.4 per cent.

Given the differences, Scotland’s figures could be seen as heartening in the circumstances. They defy considerable odds. We have a lower stock of companies relative to the UK, and a relatively higher number employed in the public sector.

And they also defy the omens. The latest Bank of Scotland purchasing managers index showed growth slowing, with only a marginal improvement in private sector activity and continuing weakness in new work. “Operating conditions for businesses north of the border”, it concluded, “remained challenging in November.”

Nor is the picture any brighter in Scottish retail. Figures released yesterday showed that total Scottish retail sales fell 1.2 per cent in November compared with a year ago. And like-for-like sales dropped by 2.2 per cent on November last year. Non-food sales are down 4.4 per cent. “Underwhelming” was the blunt summation of Scottish Retail Consortium Director Fiona Moriarty.

The problem is that this is coming on top of a labour market picture that is not quite as resilient as the headline numbers suggest. For example, Scotland’s overall employment rate fell by a full percentage point to 70.4 per cent over the August-October quarter. The equivalent figure for the UK saw a rise of 0.1 per cent to 71.2 per cent, taking the total up to 29.6 million. In the south-east the employment rate stands at 74.7 per cent.

However, there are two caveats to this picture and two points that give glimmers of encouragement. First the caveats. The figures show a slowdown in underlying employment growth. This has fuelled concern that unemployment will rise further during 2013, to around 8.2 per cent. Latest survey evidence indicates companies are cautious in their employment plans. The Bank of England’s regional agents reported in their November survey of business conditions that “employment intentions were broadly unchanged, still suggesting that little net job creation was in prospect over the next six months.”

And second, an already subdued rate of earnings growth weakened further in October, which means that the squeeze on people’s purchasing power is tightening anew given that consumer price inflation spiked up to 2.7 per cent and could well rise higher in the near term due to rising utility tariffs and increased food prices.

The two glimmers of encouragement are these. Amid well-voiced fears that the only jobs being created these days were part-time, the figures show that the number of people in part-time jobs fell by 4,000 while the numbers in full-time employment rose by 44,000. This could be a sign that the under-employment problem may be easing.

Meanwhile, figures on public and private sector employment showed a quarter-on-quarter decline of 24,000 in the number of public sector jobs. But this was more than offset by a 65,000 increase in the number of private sector jobs. In fact, private sector employment in the UK is now at an all-time high.

The issue now – as Liz Cameron, head of the Scottish Chambers of Commerce identified yesterday, is whether Scotland can follow through with an equivalent growth in private sector jobs. Previous downturns were cushioned by rises in public sector jobs. But this avenue is not open now. Public sector employment in Scotland fell 1.5 per cent in the third quarter compared with last year (two per cent if the publicly owned banks are included). But as a share of the total, public sector employment has barely changed, easing from 23.9 per cent last year to 23.5 per cent. This employment profile has to change if the underlying gap in the labour market between Scotland the south east is not to widen further.

On this perspective, Scotland would seem to have a massive job to do.