GB: Labour Market Report

Wed Oct 18 03:30:00 CDT 2017

Consensus Actual Previous Revised
Claimant Count-Chg 1,000 1,700 -2,800 -200
Claimant Count 2.3% 2.3% 2.3%
ILO Unemployment 4.3% 4.3% 4.3%
Av. Earnings-Y/Y 2.1% 2.2% 2.1% 2.2%

The labour market performed much as expected in August/September implying no change in the familiar picture of tight supply conditions and sluggish wage growth.

According to the claimant count, September joblessness rose just a marginally larger than anticipated 1,700 following a smaller revised 200 decline in August. This left the unemployment rate steady at 2.3 percent, its sixth consecutive month at this level.

The more accurate, but lagging, ILO figures showed the number of people out of work falling a further 52,000 in the three months to August. The unemployment rate was unchanged at 4.3 percent, matching both the market consensus and its lowest mark since the June quarter of 1975. Employment over the same period was up a respectable 94,000, but this was short of the 181,000 increase in May-July and a small enough gain to reduce the employment rate from a record 75.3 percent to 73.1 percent.

Crucially however, the wages market did not budge. Hence average weekly earnings in the three months ended August grew at a 2.2 percent yearly rate, a tick firmer than expected but still historically soft. Moreover, excluding bonuses, the rate dipped from 2.2 percent to 2.1 percent. As a result, average regular real earnings fell 0.4 percent on the year and so maintained the squeeze on household budgets.

Today's results mean that a hike in official interest rates at the next BoE MPC meeting on 2nd November is still far from a done deal. There may be limited spare capacity but if the economy is slowing, that need not matter for the inflation outlook and could make a monetary tightening now potentially very dangerous. Anyway, domestically generated inflation pressures seem quite benign. However, many MPC members seem to be close to their tolerance limits regarding the ongoing inflation overshoot and without a marked slowdown in demand, higher rates would appear to be just a matter of time. Another split vote looks very probable.

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.