GB: Labour Market Report

Wed Oct 19 03:30:00 CDT 2016

Consensus Actual Previous Revised
Claimant Count-Chg 3,000 700 2,400 7,100
Claimant Count 2.2% 2.3% 2.2% 2.3%
ILO Unemployment 4.9% 4.9% 4.9%
Av. Earnings-Y/Y 2.3% 2.3% 2.3% 2.4%

The labour market was slightly weaker than expected in August/September.

September claimant count joblessness actually rose a surprisingly small 700 but the August gain was revised up by nearly 5,000 to 7,100, its steepest increase since May and the sixth rise in the last seven months. Moreover, while the unemployment rate on this definition held steady, it was at a higher than anticipated 2.3 percent following a 0.1 percentage point upward adjustment to the mid-quarter outturn.

Meantime, the ILO data showed unemployment rising 10,000 in the three months to August, only enough to leave the jobless rate unchanged at 4.9 percent, but still the first increase since the three months ending February 2016.

Average earnings growth of 2.3 percent in the three months to August was in line with the market consensus but down a tick from a marginally firmer revised outturn last time. Regular earnings were also up 2.3 percent or 0.1 percentage points higher than their previous mark. Potentially more significantly, real wage growth excluding bonuses dropped to 1.7 percent, its weakest print since the December 2015 February 2016 period.

Today's data hint of some further cooling in the demand for labour but still suggest that economic activity is holding up quite well. Certainly the ILO jobless rate was below the 5.0 percent forecast contained in the last BoE Inflation Report. Still, for those concerned about the outlook the earnings update provides little to cheer about. Not so long ago the focus was on wages for signs of any pick-up that might threaten the 2 percent medium-term inflation target. Now however, the worry is that without stronger earnings growth, a near-certain rise in inflation prompted by sterling weakness will undermine real wages to the detriment of household consumption. To this end, today's drop will not be wasted on the BoE.

The Labour Market Report covers a number of key areas of the jobs market. Unemployment is updated on the basis of two separate surveys: the claimant count, which measures the number of people claiming unemployment-related benefits, and the lagging International Labour Organization's (ILO) measure that excludes jobseekers that did any work during the month and covers those people who are both looking and are available for work. Average earnings growth, a key determinant of inflation, is also updated.

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.