GB: Labour Market Report

Wed Apr 20 03:30:00 CDT 2016

Consensus Actual Previous Revised
Claimant Count-Chg -10,000 6,700 -18,000 -9,300
Claimant Count 2.1% 2.1% 2.1%
ILO Unemployment 5.1% 5.1% 5.1%
Av. Earnings-Y/Y 2.3% 1.8% 2.1%

The labour market was unexpectedly weak in February/March with unemployment posting a surprise increase and earnings growth slowing sharply.

To start with, March claimant count joblessness was up 6,700 on the month, its first increase since last August. Following a smaller revised 9,300 decline in February, the rise left the unemployment rate unchanged at 2.1 percent. However, over the first quarter, the number of people out of work decreased 31,000 or nearly 10,000 more than in the fourth quarter of 2015.

Meantime, the ILO data showed joblessness in the three months to February advancing 21,000, its first positive reading since May-July last year. The unemployment rate was 5.1 percent, matching its outturn in September-November.

Falling demand for labour probably contributed to the unexpected softness of earnings. Hence, average earnings growth in the three months to February dropped to an annual rate of 1.8 percent, a 0.3 percentage point decline versus the November-January outcome and its slowest pace since the same period a year ago. Within this, February's single month earnings weighed in at just 1.1 percent, down from 2.6 percent in January. That said, a hefty fall in bonus payments did most of the damage and headline regular wages growth was steady at 2.2 percent.

The monthly labour market data are volatile and not too much should be read into today's report. Nonetheless, the BoE MPC has already expressed its concerns about Brexit uncertainty depressing economic activity and signs of rising joblessness and falling wage growth can only exacerbate such worries.

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.