UK labour market conditions were mixed in July/August with accelerating wages contrasting with some signs of rising joblessness.
Indeed, claimant count unemployment surprisingly rose 1,200 in August although this followed a near 2,000 negative adjustment to July which now shows a fall of some 6,800. This left intact a shallow trend decline and was not enough to impact the jobless rate which held at 2.3 percent, as it has in every month since February.
The lagging ILO measure of unemployment posted a 10,000 increase in the three months to July. However, the unemployment rate weighed in at 5.5 percent, down 0.1 percentage points from the previous period and also just shy of the BoE's latest forecast.
Meantime, annual average earnings growth, a key element of the report for the BoE's MPC, was 2.9 percent in the three months to July, up from a stronger revised 2.6 percent pace in the second quarter and its largest gain in more than six years. However, the stronger than expected outturn was biased up by a 17.0 percent surge in July bonus payments, concentrated in the financial services sector. The regular earnings rate in the latest three months was 2.9 percent, just a tick higher than last time. Nonetheless, with real earnings growth now at 3.0 percent, its strongest print since June-August 2002, the outlook for consumer spending would seem pretty positive.
Today's data provide something for the MPC's doves and hawks alike. However, overall the hawks will probably be the happier with accelerating wages supporting the notion that slowing employment growth is, at least in part, a function of capacity issues. Speculation about a hike in Bank Rate at some point within the next few months should continue to bubble away.
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.