GB: Labour Market Report

Wed Jan 21 03:30:00 CST 2015

Consensus Actual Previous Revised
Claimant Count-Chg -24,000 -29,700 -26,900 -29,600
Claimant Count 2.6% 2.6% 2.7%
ILO Unemployment 5.9% 5.8% 6.0%
Av. Earnings-Y/Y 1.7% 1.7% 1.4%

Labour market developments in November/December were in line with, at most, only a gentle deceleration in overall economic activity last quarter and, if anything, slightly stronger than expected.

After a steeper revised 29,600 decline in November, claimant count unemployment fell another sizeable 29,700 in December. This was its largest decrease since August and put the fourth quarter fall at 84,400, only just short of its 89,000 slide in the previous period. The year-end jobless rate was just 2.6 percent, down another tick from November to match its lowest level since June 2008. With the exception of October 2014 (unchanged) the unemployment rate on this measure has declined every month since June 2013.

The ILO data were similarly impressive with the number of people out of work on this definition down 58,000 over the three months to November. This was sufficient to see its unemployment rate drop to 5.8 percent for the period and, for November alone, to 5.6 percent.

Meantime, wages continue to creep higher. At 1.7 percent, annual overall earnings growth in the September-November period was up 0.3 percentage points from last time while, excluding bonuses, the rate gained 0.2 percentage points to 1.8 percent. With CPI inflation only 0.5 percent in November (and set to fall further over coming months) both gauges duly suggest that real earnings are accelerating.

A short while ago the pick-up in real wage growth might have had some important implications for BoE policy. However, with oil prices the dominant factor in current price trends, the acceleration is now much less of a potential worry for the policymakers. Indeed, this month's MPC vote for no change in Bank Rate (0.5 percent) was unanimous as the previous two dissenters withdrew their call for an immediate tightening (see today's calendar MPC minutes entry).

As it is, today's labour market update should be seen as painting a relatively upbeat picture of the UK economy that should please the BoE and international investors alike.

Labour market statistics measure different aspects of work and jobs and provide an insight into the economy. The statistics cover labour force participation as well as ILO unemployment and claimant count unemployment. The statistics also show any earnings and benefits they receive.

The International Labor Organization's measure of unemployment, excludes jobseekers that did any work during the month and covers those people who are looking for work and are available for work. The ILO unemployment rate is the number of people who are ILO unemployed as a proportion of the resident economically active population of the area concerned.

The claimant count measures the number of people claiming unemployment-related benefits (jobseekers' allowance since October 1996). The claimant count is not an alternative measure of unemployment as it does not meet the internationally agreed definition of unemployment specified by the International Labour Organisation (ILO). However, it is regarded as more up to date and reflective of current conditions by the markets.

Average earnings is a key indicator of inflationary pressures emanating from the labour market and is widely used by those involved in economic policy formulation.

The employment data give the most comprehensive report on how many people are looking for jobs, how many have them and what they are getting paid and how many hours they are working. These numbers are the best way to gauge the current state as well as the future direction of the economy. Nonfarm payrolls are categorized by sectors. This sector data can go a long way in helping investors determine in which economic sectors they intend to invest.

The employment statistics also provide insight on wage trends, and wage inflation is high on the Bank of England's list of enemies. Bank officials constantly monitor this data watching for even the smallest signs of potential inflationary pressures, even when economic conditions are soggy. If inflation is under control, it is easier for the Bank to maintain a more accommodative monetary policy. If inflation is a problem, the Bank is limited in providing economic stimulus - it must stay within range of its mandated inflation target.

By tracking the jobs data, investors can sense the degree of tightness in the job market. If wage inflation threatens, it's a good bet that interest rates will rise; bond and stock prices will fall. No doubt that the only investors in a good mood will be the ones who watched the employment report and adjusted their portfolios to anticipate these events. In contrast, when job growth is slow or negative, then interest rates are more likely to decline - boosting up bond and stock prices in the process.