GB: Labour Market Report

Wed Jan 18 03:30:00 CST 2017

Consensus Actual Previous Revised
Claimant Count-Chg 5,000 -10,100 2,400 1,300
Claimant Count 2.3% 2.3% 2.3%
ILO Unemployment 4.8% 4.8% 4.8%
Av. Earnings-Y/Y 2.6% 2.8% 2.5% 2.6%

The November/December labour market report was generally stronger than expected and also pointed to some further upward creep in wages.

To start with, claimant count unemployment surprisingly fell at year-end. A sizeable 10,100 decline followed a smaller revised 1,300 increase in November and was the first fall since July. However, it was not enough to impact the jobless rate which held steady at a near-record low of 2.3 percent.

Meantime, the ILO data showed a 52,000 drop in the number of people out of work in the three months to November. The jobless rate on this definition was also unchanged at 4.8 percent, matching its lowest level since the third quarter of 2005 and a tick short of the BoE's latest forecast. To this end, just last week BoE MPC member Broadbent warned that the central bank's assumption that the equilibrium level of unemployment was 5 percent might be too high. As such, another sub-5 percent reading need not have any immediate implications for monetary policy but the MPC will clearly be watching developments here closely.

Indeed, the tightness of the labour market would finally seem to be having some effect on wages. Hence, average earnings growth in the September-November period picked up a couple of ticks to 2.8 percent, its strongest reading since July-September last year. In part this was due to a jump in bonuses but even excluding this impact, pay was rising at a 2.7 percent rate, a 0.1 percentage point gain on last time. Particularly in the light of yesterday's surprise jump in December CPI inflation, financial markets will probably see the acceleration here as disproportionately important.

In sum the latest labour market figures would seem consistent with a decent fourth quarter for UK economic activity. For monetary policy, the increase in wage growth is significant but not enough at this stage to really worry the central bank. However, more of the same over coming months and pressure for a hike in interest rates will really begin to build.

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.