State of the Nation: Is ‘full employment’ era over?
April was a record-breaking month for the Scottish economy as the COVID-19 crisis took a heavy toll on employment, productivity and growth, as highlighted by the data and forecasts in our latest State of the Nation briefing for June.
Productivity measured by output per hour fell by 0.4% for UK workers in Q1 2020, after just a few weeks of lockdown in late March.
Worse is expected to come in the data for Q2 as the lockdown continued, with many businesses and whole sectors still closed, normal working practices disrupted and digital infrastructure and technologies under pressure, especially in rural areas.
Steep fall in GDP
UK GDP shrank by 5.8% in March alone, the biggest single monthly fall since records began in 1997. UK GDP decreased by 2% across Q1 2020, the largest fall since Q4 2008 at the onset of the financial crisis and recession of a decade ago.
The RBS Purchasing Managers’ Index for Scotland plummeted further in April to an unprecedented 10.7, suggesting a severe contraction of the Scottish private sector. Government grants and bank loans have been critical in bridging widespread cash flow and liquidity issues.
Levels of business confidence have collapsed, and levels of business investment have halved.
Record low consumer confidence
Household consumption has halved during the crisis, as Scottish consumer confidence fell to record lows. Scottish retail sales suffered their worst month on record in April as the High Street shut down.
Total sales decreased by a remarkable 40.3%. Non-food retailers suffered another awful month. After a bumper month for food sales in March as many consumers stockpiled, sales growth eased back significantly in April.
A consumption-led, consumer-led recovery looks an unlikely prospect.
End of ‘full employment’ era?
The Coronavirus Job Retention Scheme has successfully protected millions of jobs and prevented mass unemployment across the UK. Its extension has been largely welcomed by employers. The average employer utilising the Job Retention Scheme claims that they would have otherwise made 35% of their workforce redundant.
There remains a strong risk of significant redundancies in key sectors of the Scottish economy, such as tourism & hospitality, retail and energy, which remain most exposed. Joblessness is expected to rise sharply in the near future. Oil and Gas UK warns that 30,000 jobs could be at risk across the UK’s energy sector alone, which is vital to Aberdeen and the North East.
After a period of strong Scottish labour market performance, and nearly five years of unemployment consistently below 5%, is the era of near-‘full employment’ over?
For more, download our latest State of the Nation briefings below, which summarises and contextualises all of the latest data and forecasts in one place.