1) Labour market continues to be the bearer of good news
The unemployment rate remained at 4.0% in July, its lowest level since 1975. Meanwhile the total level in employment continued its recent upward trajectory, rising to its highest ever level since comparable records began.
Indeed compared to a year ago there are:
- 261,000 more people in work
- 166,000 more economically active individuals
- 95,000 fewer unemployed people
All good news on this front then…
2) Jobs are being created across the economy
In line with the positive employment figures, we have also seen a rise in job growth. Indeed since July 2015, there has been a 3.8% increase in total jobs created, with positive growth across the main sectors of the economy.
3) Employers are struggling to fill these jobs however…
So the labour market is tightening, but vacancies are on the up. Traditional economic theory says this should translate into higher wages… given employees now have stronger bargaining power. Right…?
4) Well yes…but not by much
In July three month total pay growth for the whole economy picked up to 2.6%, from 2.4% in the previous three month period. While this is good news, inflation’s recent rise up to 2.5% on the back of higher energy prices, means real pay growth is at a meagre 0.1%.
So yes wages are increasing, but to a limited extent, and we’re not seeing much in the data which suggests a significant acceleration is around the corner…This dynamic has been puzzling economists for some time (check out our blog from August 2016(!) when we first highlighted the wage puzzle).
5) Construction leads the way in terms of pay increases…
…while manufacturing remains broadly in line with the whole economy growth rate.
Summing up
Taken together, today’s release doesn’t reveal too much we didn’t already know. The labour market is ticking along at a healthy rate, but wage growth continues to defy expectations and lag behind. The Bank of England do expect to see a discernible pick-up in earnings by the end of the year, but for the time being it’s much of the same. Today’s release is unlikely to have a major bearing on the MPC’s interest rate decision on Thursday.