Labour market prospects ease in November

•  Both the job prospects and job security indices from our November Consumer Barometer survey declined on the month which points to a softening in the recent strong pace of labour market improvement.  
• Any slowdown in the labour market is likely to weigh on near-term retail spending, especially in the face of recent pickups in actual and expected inflation.  

THE SURVEY SUGGESTS SOFTER GROWTH IN LABOUR MARKET ACTIVITY...  

The latest Lloyds Bank Consumer Barometer survey for November signals a softening of household sentiment towards the labour market with both key indices declining in the same month for the first time since October 2010 (chart A). Household perceptions of their job prospects, which can be interpreted as a proxy for labour demand, declined by 7 points to -42%. Meanwhile, the job security index fell by 5 points to -18% suggesting an increase in the perceived risk of job loss among those in work.

Given that the job prospects index skipped to a four-year high last month and its job security counterpart remained stable at its highest reading for over two years, these declines were not wholly unexpected. Indeed, the softer tone to consumers’ perceptions of the labour market line up with our proprietary Business Barometer which points to a fallback in Q4 GDP growth after the strong recovery in Q3 to 1% q/q. These falls also chime with the decline in consumers’ interest rate expectations over the next year for the second consecutive month, despite the Bank of England ’s decision to hold the policy rate at 0.5% and the size of the Asset Purchase Facility at £375bn which was announced before the survey began.

In any case, it is important to note that both sentiment measures have simply returned to the levels seen during the summer when employment was rising by 0.5% q/q and headline unemployment was falling by nearly 2% q/q. Moreover, although most regions have seen a fall in either job prospects or security net balances this month, only Scotland, Yorkshire and the Humber and Wales replicate the UK pattern of falls in both job prospects and security (chart B). Thus the recent picture of a resilient labour market remains intact.

...WHICH COULD WEIGH ON RETAIL OUTLAYS

Nonetheless, this softer near-term outlook for employment growth poses a downside risk to retail spending growth which slowed markedly from 2.3% y/y in September to 0.6% y/y in October (chart C), although this was partly driven by the timing of the half-term holiday period this year. Volumes are also likely to face pressure from the ongoing upward drift in both current and expected inflation over the next 12 months (chart D). This month’s rises might reflect the jump in CPI inflation from 2.2% in September to 2.7% in October which was published just before the survey took place while the broader pickups over the last few months are likely to have been driven by announcements of tuition fee and utility tariff hikes as well as the poor summer grain harvests. With the upward pressure on food prices likely to feed through to supermarket shelves over the next few months, our UK team expect headline inflation to rise towards 3% by the middle of 2013.

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