GB: Labour Market Report

Wed Sep 13 03:30:00 CDT 2017

Consensus Actual Previous Revised
Claimant Count-Chg 600 -2,800 -4,200 -2,900
Claimant Count 2.3% 2.3% 2.3%
ILO Unemployment 4.4% 4.3% 4.4%
Av. Earnings-Y/Y 2.4% 2.1% 2.1%

The UK labour market was surprisingly firm in July/August but inflationary signals were again subdued.

Claimant count joblessness unexpectedly fell. That said, a 2,800 decrease followed a smaller revised 2,900 drop in July and the unemployment rate was steady at 2.3 percent, in line with the market consensus.

Nonetheless, the relative buoyancy of the claimant count data was supported in the tardier ILO figures. These showed a sizeable 75,000 slide in unemployment in the three months to July, the sharpest decline since the three months ending November 2015. This reduced its measure of the jobless rate to 4.3 percent, short of expectations and its lowest level since the three months ending May 1975. Indeed, employment rose some 181,000 to lift the employment rate to a record high 75.3 percent.

However, in the wake of yesterday's surprisingly strong August CPI report, today's wages update is probably the most important element of today's survey. And here there was nothing to signal any intensification of inflationary pressures. Rather, average annual earnings growth for the three months to July held flat at an unexpectedly soft 2.1 percent, an outturn matched by its regular component. As a result, both total and regular real wages fell 0.4 percent on the year and so extended the ongoing squeeze on household budgets.

Once again, there are enough contradictory signals in the latest labour market update to satisfy the BoE MPC's doves and hawks alike. That wage growth is apparently going nowhere will be a key factor in what still looks likely to be a majority vote for no change in Bank Rate tomorrow. However, the hawks will be unhappy that labour market slack would appear to be disappearing rapidly and will be all the more concerned about the damage to the central bank's credibility being caused by persistently overshooting inflation.

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.