How can a country in recession see unemployment fall?

Unemployment in the UK has fallen to 2.59 million. Photo: Martin Rickett/PA Wire

The puzzle continues: how can a country in recession see its ranks of unemployed fall instead of rise?

We've just learned that the number of people in Britain claiming unemployment benefit fell by 15,000 in August - the biggest drop since June 2010 and the number of people in work rose over the three months May-July by 236,000.

This is good news, on the face of it, and is all the more remarkable at a time when official figures tell us the economy is shrinking.

But there are some details which reveal worrying trends.

In particular, the rise in employment levels is driven by growing ranks of self-employed and part-time workers; importantly, the number of them who were doing those types of jobs because they couldn't find full-time work rose over the three months to July by 24,000 to 1.42 million - the highest on record.

The number of people out of work for longer than a year has risen to the highest levels in 16 years, too.

So the figures don't reflect a healthy economy.

Many of the new jobs were in London and perhaps reflect the staff taken on during the Olympics, which is over (you may have noticed) which means those jobs may disappear.

Jobs taken on during the Olympics may now disappear. Credit: Gareth Fuller/PA Wire

But there may be some other explanations.

The general improvement in the unemployment data seems consistent and is one element making economists doubt the official picture of the economy, the GDP figures we get each quarter.

The newest member of the rate-setting committee at the Bank of England, Ian McCafferty, told MPs yesterday that VAT and National Insurance receipts suggest the economy is doing a little better than the GDP figures suggest.

Perhaps the Olympics and all the extra bank holidays have distorted the data and we may see revisions soon.

Extra bank holidays from the Diamond Jubilee celebrations, may have distorted GDP figures. Credit: Nigel Roddis/PA Wire

There is also an interesting argument by Jon Moulton, explained in an FT article here, which suggests that banks are allowing 'zombie' companies to continue.

Mr Moulton is the head of a private equity company and he estimates that a tenth of UK businesses operating today should have gone bust if banks had been as strict as they were in the last recession.

In part, Mr Moulton thinks the banks don't want to absorb the losses caused by a company going out of business while owing them money.

Also there may be a public relations consideration: banks aren't exactly popular at the moment and forcing bankruptcies would hurt them even more.

The result, however, is many people being kept on in relatively unproductive jobs.

Today's numbers are largely good news but they don't solve the puzzle.