MNI 5 Things: No Surprises Seen In UK August Employment Report

By Jamie Satchi

     LONDON (MNI) - The Office for National Statistics (ONS) will release the

UK's August unemployment and earnings data on Tuesday. Below are five things

worth noting ahead of the release.

August                                      Previous  MNI Median Forecast

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

Unemployment Rate (%)                            4.0                  4.0

Headline Average Weekly Earnings (3M/3M %)       2.6                  2.6

Core Average Weekly Earnings (3M/3M %)           2.9                  2.9

     --Analysts Forecast Unchanged Jobless Rate. 

     Analysts have correctly called the August unemployment rate eight times in

the last 16 years, including last year, and this August they look for an

unchanged 4.0% outcome. Between 2002 and 2017 analysts overestimated the

headline jobless rate five times (average data miss: -0.12pp) and underestimated

the result three times (average upside data miss: +0.13pp). Risks appear to be

tilted slightly to the upside however, with six of the 22 analysts polled by MNI

predicting a rise to 4.1%. Any uptick could potentially induce some market

reaction, given it would be only the second rise in the headline rate since

August 2016 (when  both times the gain was reversed the following month).       

     --Analysts Marginally Better at Calling Total Earnings Growth.

     Since 2010, analysts have forecast total earnings spot-on on three

occasions, overestimating three times (average data miss: -0.23pp) and

underestimating once (+0.2pp). Regular earnings growth has proved marginally

harder to call, correctly forecasting the result on just two occasions. Again,

there was a bias towards overestimating ex-bonus growth, doing so five times

(average data miss: -0.20pp), while underestimating growth twice (average data

miss: +0.2pp). Of the four underestimates across both measures, three were

registered in the last two August's. This August, analysts look for total

earnings growth of 2.6% and 2.9% on an ex-bonus basis

     --Spare Capacity Largely Absorbed. 

     An unemployment rate of 4.0%, the lowest since February 1975, and record

high vacancies both corroborate with the Bank of England's assessment of "very

limited" spare capacity within the labour market. The marginal attachment ratio

- the proportion of the population who report that they would like a job but are

not currently seeking one - has also fallen sharply in recent years, suggesting

slack across those not actively looking for a job is also limited. So long as

these forces keep the jobless rate below the Bank's estimate equilibrium rate

(4.25%), there will be little scope for further labour market tightening without

the generation of excess wage pressures. 

     --Wage Pressures Heating Up. 

     Starting salary growth hit a 41-month high in September, according to the

latest REC Report on Jobs. The report surveys recruitment consultants and is,

therefore, a valuable measure of wage growth - but only when job churn is high.

During the time of the financial crisis, when job security was low, workers were

reluctant to move jobs and the REC measure of wage growth, which is based only

on candidates seeking fresh roles, did not correlate well with headline earnings

growth. Job security has improved considerably since then, with job-to-job flows

close to pre-crisis levels, thus making the data much more relevant now. Still,

it should be considered alongside the usual measures of intra-firm pay

settlement data provided by the likes of XpertHR and the BOE Agents.        

     --Claimant Count Back on the BOE's Radar. 

     The BOE's September MPC Minutes further alluded to dwindling labour market

slack, making reference to the claimant count - "Claimant count data, adjusted

for the effects of Universal Credit, had pointed to a further decline in

unemployment in the near term". This is of note as the statistic had lost its

National Statistics quality mark, deemed "no longer able to provide a reliable

measure of movements in the labour market". Despite its current, demoted

'experimental' status, it appears the data is still -on the radar of the MPC,

likely adjusted by their in-house economists, and thus worth keeping an eye on. 

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

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