GB: Labour Market Report

Tue Apr 17 03:30:00 CDT 2018

Consensus Previous Actual Revised
Claimant Count 2.4% 2.4%
ILO Unemployment 4.3% 4.3% 4.2%
Av. Earnings-Y/Y 3.0% 2.8% 2.8%
Claimant Count-Chg 5,000 9,200 11,600 15,100

The February/March labour market report was mixed and leaves an uncertain outlook for the BoE MPC's next meeting in May.

For a start, the unemployment data moved in opposite directions. The less reliable, but more current, claimant count showed an 11,600 jump in March and that after a steeper revised 15,100 jump in February. On this measure, the jobless rate was unchanged at 2.4 percent, a near record low.

However, the preferred, but more tardy, ILO figures showed a 16,000 fall in the three months to February. This put its version of the rate at a surprisingly soft 4.2 percent, down a tick from last time and equalling its lowest reading since the first quarter of 1975. Moreover, the single month rate for February touched a new record low of just 4.0 percent. At the same time, employment expanded a further 55,000, well short of the 168,000 surge in November-January but still enough to lift the employment rate to 75.4 percent, a new all-time high.

Even so, wages are still responding slowly. Hence, average annual earnings growth in the three months to February was 2.8 percent, only matching the previous rate and short of market expectations. That said, excluding bonuses growth was also 2.8 percent, up from 2.6 percent last time and potentially indicative of a pick-up in the underlying pace. In the same vein, real regular wages growth (0.2 percent after minus 0.2 percent) finally turned positive.

Today's report does not look strong enough to secure a unanimous vote for another hike in Bank Rate next month. Still, with the ILO rate now below the 4.25 percent level that the central bank sees as consistent with full capacity and underlying wages finally showing some strength, a split decision in favour of a further 25 basis point tightening probably remains the most likely outturn. Unexpected weakness in tomorrow's CPI report could yet change that.

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.