Global Daily – Yellen’s job scoreboard

door: Peter de Bruin , Nick Kounis

Global-Daily-Insight-12-June-2014.pdf (65 KB)
  • Some of Fed Chair Yellen’s labour market indicators point to disappearing labour market slack…
  • …though others suggest that the labour market recovery has still much further to go
  • UK jobs growth highest on record and jobless rate tumbles, but wage growth subdued


Various labour market indicators continue to point to disappearing labour market slack..

In today’s daily, we take another look at various labour market indicators, including many of Fed Chair Yellen’s preferred measures, in order to assess to what extent slack in the labour market is disappearing. While some indicators still suggest that the labour market recovery has a long way to go, our sense remains that slack continues to gradually disappear. This became, for instance, apparent in Monday’s NFIB Small Business Optimism index. The headline of this report rose to a new post-recession high in May, but what caught our attention was the fact that 46% of small and medium sized firms have few or no qualified applicants to fill job openings. This is the highest level in this recovery, and just a touch below the highs that we saw during previous upswings. Meanwhile, Monday’s JOLT Survey is also indicative of slowly disappearing labour market slack. Admittedly, the hirings and quit rate remained constant at 3.4% and 1.8%, respectively, but the job openings rate rose by 2 tenths to 3.1% in April, which was the highest level since September 2007. As a result, the amount of unemployed per job opening dropped to 2.2, a new post-recession low. In the past upswing, when the amount of unemployed per job opening fell below 2.2, this led to an acceleration in wage growth. As such, Monday’s report supports our view that wage growth is set to strengthen in the coming months


…though others point to a less healthy labour market recovery

That said, other labour market indicators paint a less healthy labour market recovery. Indeed, while the long-term unemployment rate (which measures persons being unemployed for more than 27 weeks) has fallen from a peak of 4.4% to 2.2% in May, it remains considerably above its long-term average. This contrasts to developments in the short-term unemployment rate, which is now significantly below its long-term average. Meanwhile, the share of the work force that wants to work full-time, but due to economic reasons is forced to work part-time, stood at 4.7% in May. This is 1.3 percentage points below its peak of 6% in 2010, but still high from a historical perspective. Going forward, we expect the labour market recovery to become increasingly broad and slack to continue to disappear.


UK unemployment continues to plummet, but wage growth subdued

The UK labour market report painted a generally upbeat picture. The ILO unemployment rate fell to 6.6% in the 3-months to April from 6.8% in the previous period. It is down sharply from 7.2% at the start of the year. This reflected a 345K surge in employment, the strongest job growth on record. Meanwhile, the more up to date claimant data suggested the positive trend continued last month. The claimant unemployment rate fell to 3.2% in May from 3.3% in April, taking it to the lowest level since October 2008. With the UK economy currently growing at an annualised quarterly rate of around 4%, which is well above trend, the stellar performance of the labour market is likely to continue in the coming months.  However, the missing link at moment is turn in wage growth. Average earnings fell to 0.7% in April from 1.9% in March, which brought real wages into negative territory again. That is partly due to a change in the timing of bonus payments, but there is no doubt that wage growth is still subdued in underlying terms. Still, the strength of the economy and ongoing tightening of the labour market should lead to an uptrend in wage growth going forward. We maintain the view that the BoE will become the first major central bank to raise its policy rate (likely early next year). We also continue to favour short EUR/GBP as one of conviction top picks.