GB: Labour Market Report

Wed Feb 21 03:30:00 CST 2018

Consensus Actual Previous Revised
Claimant Count-Chg 4,000 -7,200 8,600 6,200
Claimant Count 2.4% 2.3% 2.4%
ILO Unemployment 4.3% 4.4% 4.3%
Av. Earnings-Y/Y 2.4% 2.5% 2.5%

Overall, the December/January labour market report was weaker than expected and wages growth continues to flatline.

On the positive side, claimant count joblessness fell 7,200, the first decline since last August, and that after a smaller revised 6,200 increase in December. The unemployment rate was 2.3 percent, down 0.1 percentage points from last time and its first decline since February 2016.

By contrast, the more reliable ILO data showed fourth quarter unemployment rising 46,000. This was the first increase in nearly a year and enough to lift the jobless rate a tick to 4.4 percent and so above the 4.3 percent recently forecast by the BoE. Employment (88,000) saw another solid gain but this was well short of the previous period's rise and so also in line with some cooling in the demand for new labour.

With the February BoE MPC offering clear warnings signals about a probable near-term monetary tightening, today's wages update is particularly important. Here the news did little to further the case for an immediate hike in Bank Rate. Hence, fourth quarter average annual earnings growth was 2.5 percent, matching its rate in both the October and November quarters and even unchanged from a year ago. Excluding bonuses, the rate was also 2.5 percent, up a couple of ticks from a weaker revised outturn last time but still indicative of an essentially sideways trend.

As is often the case, there is something in today's data for the BoE's doves and hawks alike. The MPC seems to have all but decided that interest rates will have to go up again unless inflation surprises on the downside but this report hardly strengthens the case for a move as soon as March. The May meeting still looks the more likely date.

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.