The August/September jobs report was mixed with conflicting signals on unemployment and slightly softer than expected news on underlying wages growth.
According to the claimant count measure, unemployment surprisingly rose in September. A 4,600 increase followed an unrevised 1,200 gain in August and constituted the third, albeit only small, rise in the last four months. The jobless rate on this definition was again unchanged at 2.3 percent, in line with expectations and also matching the level at which it has been pegged since March.
However, the ILO data were much stronger. These showed unemployment in the three months to August falling a healthy 79,000, the first decline in three months and large enough to see the jobless rate dip a tick to an unexpectedly low 5.4 percent.
Still, and crucially for many BoE MPC members, wages were relatively restrained. Thus, annual average earnings growth in the three months to August was 3.0 percent, up just a tick from last time and corresponding with the market consensus. Moreover, the minimal rise was essentially due to a 10.2 percent bounce in bonuses and regular earnings over the same period dipped from 2.9 percent to 2.8 percent. In fact for the month of August alone, regular earnings growth was just 2.5 percent, a drop of 0.4 percentage points from July.
In testimony before the Treasury Select Committee yesterday, Ian McCafferty, the MPC's leading hawk and currently the sole member calling for an immediate hike in Bank Rate, seemed rather less worried by inflation pressures. Indeed, he even went so far as to accept that interest rates might be cut further if needed. As such, today's wages and employment update should leave intact a growing market conviction that monetary policy is most likely on hold until well into 2016.
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.