GB: Labour Market Report

Wed Jul 15 03:30:00 CDT 2015

Consensus Actual Previous Revised
Claimant Count-Chg -6,500 7,000 -6,500 -1,100
Claimant Count 2.3% 2.3% 2.3%
ILO Unemployment 5.5% 5.6% 5.5%
Av. Earnings-Y/Y 3.3% 3.2% 2.7%

The UK labour market showed fresh signs of cooling in May/June. Unexpected rises in both the claimant count and ILO measures of unemployment suggest that the economy has failed to recover all of the momentum it had at the end of last year. However, potentially more significantly, wages growth continued to accelerate.

Following a smaller revised 1,100 fall in May, claimant count unemployment rose 7,000 on the month at quarter-end, its first increase since October 2012. The jobless rate held at a lowly 2.3 percent, matching its level in both April and May. Painting a similar picture, the ILO measure showed unemployment up 15,000 over the three months to May, enough to nudge its rate a tick higher to 5.6 percent. Moreover, in May alone the jobless rate was an even higher 5.8 percent.

However, the apparent weakness of the jobs market coincided with another sizeable bounce in wages. Hence, total average earnings in the three months to May increased an annual 3.2 percent, a tick softer than expected but still a marked 0.5 percent rise versus its April pace. That said, much of the pick-up was attributable to stronger bonuses as the yearly rise in regular earnings edged up only 0.1 percentage points to 2.8 percent over the same period. Indeed, for the month of May alone, overall wages growth slowed from 4.4 percent to just 2.6 percent.

Today's data will be looked upon by the BoE MPC's hawks as additional proof that the Bank Rate should be hiked sooner than later. However, if the economy really is cooling, earnings could well slow again of their own accord. Moreover, most on the MPC see stronger wages as a prerequisite for meeting the 2 percent CPI target anyway. Nonetheless, skills shortages appear to be becoming more widespread and the surprisingly soft jobs data is probably at least in part a function of inadequate supply. Certainly the upward trend in earnings is consistent with this.

Overall the data should provide sufficiently mixed signals as to ensure that the majority of MPC members will feel happy to leave policy on hold for a fair while yet. Slightly more hawkish comments from BoE Governor Carney yesterday will have made financial markets all the more alert to any further acceleration in wages but for now a 0.5 percent Bank Rate at year-end remains the best bet.

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.