Ulster Bank economist, Lynsey Clemenger, commented:

Unemployment benefit claimants rise the most since August of last year, but not by as much as the leaks suggested:In the wake of somewhat disappointing tax revenue data yesterday, we find some modest comfort in the fact that the January Live Register data were not quite as bad as the leaks suggested. On a seasonally adjusted basis, unemployment benefit claimants rose by 5,800 in the month, below the 8,000 figure reported in the press. This said, the January rise was the largest since the 7,100 increase in August of last year and casts some shadow over the signs of stabilisation evident in preceding months. As the monthly data can be volatile, we look to the 3-month moving average for a better picture of the underlying trend. On this measure, the 3,100 rise in January was the highest since September of last year

Irrespective of the measure used, the January numbers were weaker than we had been expecting. However, it is important not to lose sight of the big picture. In January of last year the number signing on rose by a massive 29,000. The total on the Live Register now stands at 434,700. While this is up some 34% on a year earlier, the annual pace of increase has slowed from 46% in December and is now at the lowest since June 2008.

Post-Christmas layoffs in retail and construction likely contributed, although we do not have sectoral detail: An employment shakeout after Christmas looks to have taken place, with adverse weather conditions likely to have added to the extent of the job cuts. While we do not have the sectoral detail, we do have the male/female breakdown of the monthly rise in benefit claimants in January. This shows a larger 3,400 rise in the number of females on the Live Register and a 2,400 rise in males. When the official Q1 data from the QNHS become available later in the year, we would not be surprised to see employment in the retail and construction sectors hardest hit.

Unemployment rate hits current cycle high of 12.7%, but has further to rise before peaking at an expected 13.4% by mid-year: The Live Register estimate of the unemployment rate rose to a current cycle high of 12.7% in January, from 12.5% in December. This is in line with what we had factored in, and we anticipate monthly increases of a similar magnitude in the months ahead. Therefore, we continue to be of the view that the unemployment rate will peak at 13.4% by the middle of the year, and average 13.2% for the year as a whole. This forecast assumes that the pace of decline in labour demand will ease further over the course of the year, as the economy shows greater signs of recovery. We also expect ongoing outward migration and lower participation rates will limit the upward pressure on the unemployment rate. In addition, as those who no longer qualify for unemployment benefits fall off the Register, this should also play some role in moderating the pace of increase.

As we noted with the exchequer figures yesterday, one month’s data does not make a trend. While the monthly additions to the Live Register in January were certainly higher than we had been expecting, we remain of the view that the underlying trend will continue to be one of improvement in the quarters ahead. We stress underlying trend, as this allows for some weaker months along the way, without derailing the gradual improvement we anticipate.

Davy chief economist, Rossa White, commented:

Live Register January numbers rose the most since August

• Claimants increased by 5,800 seasonally adjusted. That equates to a rise of 1.4%, the most since August.
   
• Surprisingly, the number of male claimants (+2,400) increased by less than females (+3,400) – suggesting that construction was not responsible for the bulk of the payoffs. Retail may have been a bigger culprit.
   
• There was some good news, however. The number of people aged under 25 on the dole is shrinking. Since the peak of 91,800 in August, numbers are down by 6,000. In January, that total fell 1,200. This tallies with recent reports of a surge in university applications.

Estimated unemployment rate is 12.7%

• The Live Register is no more than an accurate guide to the trend in official unemployment between releases of the Quarterly National Household Survey (QNHS). The gap between those claiming benefit of one form or another and those officially unemployed is more than 150,000. At this point in time, the official unemployment total is probably 280,000 versus 434,700 on the Register. The Live Register includes part-time, seasonal and casual workers entitled to supplement their income but not unemployed.
• The latest estimate of unemployment, extrapolating from the last QNHS, is 12.7% – up from 12.5%.

Unemployment set to peak below 13.5% in late summer

• We still expect the unemployment rate to peak below 13.5% in late summer 2010. Residual job losses are set to occur in construction (10-15,000) and indigenous industry (c.10,000). Retail is also set to lose a few thousand jobs, although employment is close to bottom in that sector. Meanwhile, the labour force will shrink until at least Q3 2010.