GB: Labour Market Report

Wed Dec 16 03:30:00 CST 2015

Consensus Actual Previous Revised
Claimant Count-Chg 1,500 3,900 3,300 200
Claimant Count 2.3% 2.3% 2.3%
ILO Unemployment 5.2% 5.2% 5.3%
Av. Earnings-Y/Y 2.7% 2.4% 3.0%

The October/November labour market update was a little softer than expected and certainly lacked the necessary inflationary signals needed to prompt a hike in official interest rates any time soon.

To start with, claimant count unemployment rose a larger than expected 3,900 in November albeit after a smaller revised 200 increase in October. This was the fourth consecutive month in which joblessness on this measure has risen. That said, the cumulative gain has still not been sufficient to raise the unemployment rate from the 2.3 percent mark at which it has been stuck since March.

The ILO data were more upbeat, showing a 110,000 drop in the number of people out of work in the three months to October. This saw the jobless rate drop another tick to 5.2 percent, a full 0.2 percentage points below the BoE's latest forecast and a new multi-year low.

However, crucially wages growth remains very subdued. In fact, in the three months to October the annual increase in average earnings was just 2.4 percent, down fully 0.6 percentage points from last time, its weakest print since March and comfortably below market expectations. Moreover, in October alone the yearly rise slowed still further to only 1.9 percent, the smallest gain since February. Meantime, excluding bonuses annual growth in the latest three months was 2.0 percent, a significant decline from the 2.4 percent rate seen in the third quarter.

The bottom line is that whether the jobs market is tightening or not, price pressures remain weak. There is nothing in the wages data to suggest any inflationary shift in the foreseeable future. Accordingly the outlook for Bank Rate remains unchanged at 0.5 percent 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.