The UK labour market made further progress in March/April but amidst further signs of slowing growth there was also a surprisingly sharp acceleration in wages.
Claimant count unemployment fell an unexpectedly small 6.500 in May, its weakest decline in more than 2 years and not enough to reduce the jobless rate which weighed in at 2.3 percent for a third consecutive month.
The ILO statistics painted a similar picture of moderating economic growth as unemployment over the latest three months declined a relatively mild 43,000, well short of its 102,000 decrease in NovemberJanuary. The jobless rate on this measure was also unchanged at 5.5 percent, in line with the market consensus.
However, average earnings were surprisingly robust. At an annual rate of 2.7 percent, growth in the three months to April was well above expectations, up from a stronger revised 2.3 percent in the first quarter and the fastest since July 2011. Moreover, the pick-up in headline earnings was matched by the regular wage component which also climbed from 2.3 percent last time to a 2.7 percent yearly pace, its strongest showing since February 2009.
The bottom line is that even if the labour market has started to cool, it is already tight enough to accommodate higher wage demands. Current wage rates are unlikely to trouble the BoE MPC in general as a recovery here was seen as a precondition for CPI inflation returning to target. Nonetheless, the widening gap between nominal earnings growth and inflation should be seen positively for household consumption going forward and the MPC hawks will be all the more concerned about possible rising inflationary pressures.
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.