GB: Labour Market Report

Wed Mar 21 04:30:00 CDT 2018

Consensus Actual Previous Revised
ILO Unemployment 4.4% 4.3% 4.4%
Av. Earnings-Y/Y 2.7% 2.8% 2.5% 2.7%
Claimant Count-Chg -5,000 9,200 -7,200 -1,600
Claimant Count 2.3% 2.4% 2.3%

Overall, the January/February report was firmer than expected and there are signs that wages may finally be responding to tightening market conditions.

The ILO data for the three month to January showed joblessness rising a further 24,000. However, this was small enough to reduce the unemployment rate a tick to 4.3 percent, below market expectations but in line with the BoE's latest forecast and also matching its lowest reading since the three months ending May 1975. Employment jumped an impressive 168,000 following an already sizeable 88,000 bounce in the fourth quarter. This boosted the employment rate to 75.3 percent, equalling its all-time peak. Vacancies were up too, gaining 10,000 although at 816,000, this was well short of the 824,000 high seen in the fourth quarter.

By contrast, the more up to date but less reliable, claimant count survey was relatively downbeat, finding the number of people out of work rising 9,200 after a much smaller revised 1,600 drop at the start of the year. The jobless rate was 2.4 percent, up from 2.3 percent last time.

However, amidst much talk of a near-term hike in interest rates, the main focus today was wages and here the news was quite robust. Average annual earnings growth in the three months to January was 2.8 percent, up a tick from a higher revised print last time, on the strong side of expectations and the fastest rate since the third quarter of 2015. Excluding bonuses, the rate was a slightly softer 2.6 percent, but also 0.1 percentage points firmer than in the fourth quarter and matching the market consensus. Adjusted for inflation, real regular pay again fell but by only 0.2 percent, its smallest drop since February 2017. Total real earnings growth improved to flat, its first non-negative print since last May.

In sum, today's report is quite strong. However, the acceleration in wage growth is unlikely to be enough to tip the BoE's MPC in favour of another 25 basis point just yet. That said, there is at least an outside chance that some of the hawks could break ranks at tomorrow's meeting, an eventuality that would be seen as increasing the likelihood of a move at the next discussions in May.

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.