Employment declines by 40,200 in Q3, taking total job losses in the recession to over 236,000… Today’s Quarterly National Household Survey (QHNS) data for the third quarter show that the Irish labour market remains in a very weak state. Total employment in Q3 fell by 40,200 from the previous quarter. In the year to Q3, the decline in employment was of the order of 183,400, which in percentage terms corresponds to a decline of 8.8% - a fresh low for the current cycle. In total, the Irish economy has now shed 236,300 jobs over the course of this recession.

While it remains the case that the economy is continuing to shed jobs at a fast pace, the situation is not as bad as in the first quarter of this year (see graph). Indeed, the quarterly decline of just over 40,000 is Q3 represents a significant improvement on the near 80,000 drop in Q1. However, we find ourselves somewhat disappointed that the improving trend evident in the second quarter did not continue into Q3, especially given the less negative signs from the Live Register and the employment indexes of each of the Manufacturing, Services and Construction PMIs over the same period.

Industry takes over from construction as the weakest sector in Q3…In terms of the sectoral breakdown, job losses were evident in three main areas of the economy in Q3. An intensification of weakness in the industrial sector translated into a large 12,200 quarterly fall, which represents the biggest drop in the current cycle thus far. The construction sector also continued to shed workers. However, the observed quarterly decline of 8,700 represented the smallest drop since the first quarter of 2008. Consumer spending remains a weak-spot in the Irish economy as is evidenced in the monthly retail sales data. It is therefore not surprising that employment in wholesale and retail trade continued to fall, dropping by 8,500 in Q3 relative to Q2. Employment in government sectors declined by a total of 1,700 on the quarter, albeit that when compared with last year it remained up 12,200.

Developments in other employment sectors have not been as weak, with modest increases in information and communication, financial, insurance and real estate activities, transportation and storage, and admin and support services. However, there are concerns surrounding the sustainability of the resilience evident in some of these sectors. In particular, it is difficult to reconcile the further (modest) rise in employment in the financial services sector with the clear weakness signalled in the anecdotal evidence. We expect this apparent resilience to give way to employment declines in this sector in the quarters ahead.

Unemployment still rising, but at a much less dramatic pace…Developments in the unemployment rate were broadly as expected.  The QNHS reports a seasonally-adjusted jobless rate of 12.4% in the third quarter, pretty much in line with the monthly Live Register estimates over the period which were at 12.5% on average.  This latest reading of the official measure of the unemployment rate corresponds to the worst labour market conditions since 1994.

That said, it is clear from these numbers that the rate of increase in the jobless rate is easing back.  The increase between the second and third quarters was 0.8 percentage points, compared with a 1.5 point increase between Q1 and Q2 and a 2 point jump between the final quarter of last year and Q1 of this.  Indeed, the rise in the numbers unemployed in Q3 of 13,100 was the smallest quarterly rise since Q1 2008.

Thus, the less negative trend which is emerging is consistent with the idea that the labour market is still continuing to weaken, but at a less intense pace than at the height of the recession around the turn of the year. 

But the less pronounced upward movement in the unemployment rate is also importantly linked to a shrinking workforce.  Thus, a 185,000 decline in employment over the past year has been associated with a smaller 120,000 increase in the numbers recorded as unemployed, the difference of around 65,000 representing a drop in the numbers active in the labour market. 

Emigration picks up as almost 45,000 non-Irish nationals leave the country in the last year…There are two forces contributing to the decline in the workforce.  Firstly, outward migration is playing a larger role in the adjustment underway in the Irish labour market.  The CSO estimates that almost 45,000 Non-Irish nationals aged 15 and over left the country in the year to Q3 (an increase on the 34,500 in Q2), contributing 40,500 to the decline in the workforce over the year. 

And more broadly, participation rates remain under considerable downward pressure.  In other words, a smaller proportion of the population of working age are choosing to participate in the jobs market.  This is especially striking among younger age groups which have seen very sharp falls in participation.  The overall participation rate has fallen to 62.5% from 64.2% a year ago, but that for the 15-19 age group has slumped from 30.8% to 22.7% while that for the 20-24 grouping has fallen from 77.4% to 72.9%. The survey doesn’t provide any information on the reasons for this trend but it is likely that many potential young workers are choosing to further their education and training rather than entering the workforce in the current climate.  As a more general point, there is also likely a ‘discouraged worker’ effect at play in the observed decline in participation levels, as the lack of job prospects deters many individuals from actively seeking work.