MNI 5 Things: Bonuses likely to weigh on UK earnings in March

-- Analysts over-estimate unemployment, under-estimating total earnings

By Jai Lakhani

     LONDON (MNI) - The UK Labour Market Survey is set for release Tuesday, with

the unemployment rate and the latest earnings data widely anticipated as key

metrics eyed by the Bank of England's Monetary Policy Committee. MNI's median

poll suggests analysts are expecting bonuses to exert downward pressure on

earnings. Unemployment however is expected to remain firm at 4.2%.

     Table 1: Analyst Estimates 

                    Average Weekly

                  Earnings 3m/3m %   Average Weekly Earnings    ILO Unemployment

March                          YoY   (Exc Bonus) 3m/3m % YoY           Rate 3m %

--------------------------------------------------------------------------------

Prior                          2.8                       2.8                 4.2

MNI Median

Estimates                      2.7                       2.9                 4.2

     Here are five things MNI flag up ahead of the data.

     --Historically, March has seen analysts over-estimate the ILO Unemployment

rate. 

     The average miss has been an over-estimate of 0.01 percentage points and

the sum of the misses results in a over-estimate of 0.2. Total earnings,

however, has seen some fairly-large under-estimates. This has meant the average

under-estimate is 0.26 percentage points since 2010. Core earnings however shows

less volatile misses but tends to be over-estimated with an average

over-estimate of 0.08 percentage points since 2010. A reason explaining this

difference could be the well-known volatility in bonus payments.

     --February Recap- Strong Core earnings juxtaposed Weak Total Earnings.

      February's nominal wage growth disappointed relative to analyst estimates.

The MNI median forecast of 3% was 0.2 percentage points higher than the actual

figure of 2.8% on a 3m/3m y/y basis. Core earnings however rose at the analyst

forecast of 2.8%. The reason for this was that bonus payments fell by 3.3% in

the year to February. This meant on a 3m/3m y/y basis, bonus growth was down to

3.5% - the lowest since the 3 months to July. 

     --Lack of strong December's bonus likely to magnify February's downturn.

      December was a good month for bonus pay with the single month y/y growth

of 10.1% well above the average in the time series of 4.3%. The effect was

average weekly earnings single month y/y growth of 3.1%, which was last higher

in August 2015. Taking the average single month year on year percentage growth

as an estimate for March, points to a lower 3m/3m y/y growth rate of 2.7% for

March, in line with analyst estimates but below February's figure of 2.8%. 

     --Core Earnings May Undershoot Analysts Expectations ...  Again.

      The old habit of analysts over-estimating core earnings could be apparent

for March. Taking the average of single month % change y/y growth of 2.8% and

inputting this for March would suggest a 3m/3m y/y growth rate of 2.8% instead

of the 2.9% anticipated by analysts. March would have to see a one-month y/y

growth rate of 3.1% to achieve the forecasted 2.9% figure. The last time said

3.1% growth occurred was in July 2015. 

     --Unemployment to remain at 4.2% for now ... 

     As a recent MNI analysis evaluated, the REC report showed strong increases

in permanent jobs as well as temporary billings. This has seen the rate of

reduction in candidate availability at 3- and 5-month records for permanent and

temporary jobs respectively. Combining this with an anticipated rebound in the

second quarter of 2018 suggests unemployment has further reduction to go,

illustrated by the Bank of England in its May inflation report revising down its

2018 second quarter unemployment rate to 4.1% and anticipating the figure to be

at 4% by the second quarter of 2019. 

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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