GB: Labour Market Report

Wed Feb 18 03:30:00 CST 2015

Consensus Actual Previous Revised
Claimant Count-Chg -26,000 -38,600 -29,700 -35,800
Claimant Count 2.5% 2.5% 2.6%
Av. Earnings-Y/Y 1.7% 2.1% 1.7% 1.8%
ILO Unemployment 5.7% 5.7% 5.8%

The UK labour market continued to make very solid and stronger than expected progress around the turn of the year. Moreover, with capacity shortages starting to become something of an issue in some areas, wages growth is beginning to accelerate, albeit from historically very low levels.

Claimant count joblessness decreased a further 38,600 in January and that following a much steeper revised 35,800 decline at year-end. The latest drop was the largest since June 2014 and enough to see the jobless rate dip another tick to just 2.5 percent. The unemployment rate on this measure has now fallen in eighteen of the last nineteen months.

The lagging ILO data painted a similarly buoyant picture at year-end with its gauge of the number of people out of work posting a fall of some 97,000 during the final quarter of 2014. The ILO rate also dipped another tick to 5.7 percent.

Meantime, average earnings growth moved higher again. Including bonuses, the yearly rate last quarter was 2.1 percent, up from a slightly firmer revised 1.8 percent in the three months to November for its sharpest increase since the second quarter of 2013. However, the acceleration was attributable to sharply higher bonus payments (up 10.6 percent) and regular pay over the same period posted a 1.7 percent rate, down 0.1 percentage points from last time.

Today's data suggest that the UK economy has started to acquire some additional momentum. Certainly, although still early days, first quarter growth looks set to outpace the 0.5 percent rate provisionally recorded in the fourth quarter. In particular, with real earnings now benefitting from a combination of stronger nominal wage gains and falling inflation, household confidence should be on the rise and, indeed, recent news on the housing market has been surprisingly upbeat.

An early hike in Bank Rate still looks improbable but against this backdrop, the pound should continue to attract strong interest out of continental Europe.

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.