GB: Labour Market Report

Wed Dec 13 03:30:00 CST 2017

Consensus Actual Previous Revised
Claimant Count-Chg 3,200 5,900 1,100 6.500
Claimant Count 2.3% 2.3% 2.3%
ILO Unemployment 4.2% 4.3% 4.3%
Av. Earnings-Y/Y 2.5% 2.5% 2.2% 2.3%

The labour market loosened somewhat in October/November and underlying wages again failed to show the acceleration needed to warn of any meaningful pick-up in domestically generated inflation pressures.

November claimant count joblessness was up a larger than expected 5,900 and that after a sharper revised 6,500 advance in October. This yardstick has now increased for three months in a row although the unemployment rate was again only unchanged at 2.3 percent.

Meantime, the ILO data showed the number of people out of work declining a further 26,000 in the three months to October. However, this left its measure of the unemployment rate only flat at 4.3 percent which, while historically very low, was slightly higher than expected. It also coincided with a 56,000 drop in employment, its steepest fall since March-May 2015. That said, vacancies were very robust, rising 14,000 to a new record high of 796,000.

Crucially for the monetary policymakers, underlying earnings growth was little changed. The average annual earnings rate for the three months to October did gain a couple of ticks to 2.5 percent but this matched the market consensus. More significantly anyway, excluding bonuses the rate edged just 0.1 percentage points firmer to a still very subdued 2.3 percent. Consequently real regular wage growth was again negative at minus 0.4 percent, maintaining the squeeze on household budgets.

In summary, the latest labour market figures are mixed enough to leave a clouded picture of where the UK economy stands. The market is clearly still tight but seems to be easing slightly. This should keep the BoE MPC's doves happy enough but may not be enough to convince the hawks that another hike in Bank rate will not be needed in 2018.

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.