Flat jobs market shouts ëcall timeí on interest rate rises

The latest Office for National Statistics (ONS) employment and pay figures indicate that conditions in the labour market remained subdued at the end of 2006 with still no sign of a surge in wage pressure ñ backing the findings of the latest CIPD / KPMG Labour Market Outlook report published earlier this week. Yet despite this, and the fact that surveys by the Bank of Englandís own Agents point to only a modest rise in pay growth this year, the ëuncertain to hawkishí tone of the Bankís Inflation Report, published today, implies that at least one more quarter point interest rate is still on the cards, says Dr John Philpott, the CIPDís Chief Economist.

Dr Philpott commented on aspects of todayís ONS figures as follows:

Fall in unemployment masks fragile demand for employees and rise in numbers of jobless people stating they are long-term sick

ìWhile total employment increased by 51,000 in the October-December 2006 quarter, the employment rate was flat, and self-employment accounts for most (35,000) of the increase in the number of people in work. Following the pattern of recent quarters the number of full-time employees fell (down 57,000 in October ñ December) and there was another big jump in the number of temporary employees (up 70,000). This suggests a marked degree of uncertainty on the part of employers when hiring staff at present.

ìUnemployment has fallen (by 23,000 in the quarter, on the Labour Force Survey, measure). But the numbers of economically inactive people increased by a net 19,000, with a disappointing rise (also of 19,000) in the number of inactive jobless people who state they are long-term sick. This reverses the recent downward trend in the level of long-term sickness related joblessness, though it is not yet clear if this will translate into a renewed rise in the number of jobless people claiming Incapacity Benefit.

Signs of greater ëchurní in claimant count unemployment
ìThe welcome fall (13,500) in the number of people claiming jobseekers allowance in December disguises an interesting phenomenon. There was a big jump in both the number of people making fresh benefit claims and the number leaving the count. The fact that this occurred during a period of low and stable redundancies suggests a marked degree of churn in and out of claimant unemployment at present ñ an observation that squares with evidence that employers are at present hiring additional staff mainly on temporary contracts.

Pay pressures remain subdued
ìThe fall in the rate of growth of earnings in the quarter to December is, from a monetary policy standpoint, the most welcome news to be found in the latest labour market figures. The trend in pay was broadly flat during 2006 as a whole and, according to Bank of England Agents reports, mentioned in todayís Inflation Report, the outlook is for only a modest rise in pay pressure in 2007. From what employers tell the Bankís Agents, pay settlements are likely to average 3.4% - only a little higher than in 2006 and exactly in line with the latest CIPD/KPMG quarterly Labour Market Outlook survey, published earlier this week.

ìYet despite this good news on pay the Bankís Inflation Report, and comments this morning by the Bank Governor Mervyn King, are sufficiently cautious about the outlook for inflation to suggest a further quarter point interest rate hike remains firmly on the cards. So although the labour market data may be calling time on another rate hike, donít be surprised if there is one sometime this spring.î