Compositional Effects

Research evidence excerpt

Compositional Effects

IdeaMVolumes | Steadying or...? Despite a sharp uptick in redundancy intentions in May,

June payrolls declined only marginally, by 4k. The headline data continues to mask

the scale to which public sector hiring props up the aggregate headcount. Public

sector payrolls are up by 0.9%3M/Y, while private sector payrolls – with broad-

based weakness – are down by 0.8%3M/Y. We are not sure if this dynamic can

persist for much longer, given the incoming slowdown in day-to-day public spending

growth. But we had expected the momentum in public sector hiring to be materially

softer than last year already, and our level of conviction around this is now not that

high.

LFS data continues to push employment levels higher. The May print was not

flattered by self-employment. Rather, the LFS numbers look to be the only source

of labour market data available showing robust hiring in the UK - a near-120k rise in

the number of employees in the past three months. Single month jobless rate came

in at ~4.5%, and as the very elevated single-month print from February leaves the

three-month sample next month, there is, we assume, some scope for the jobless

rate as measured by the LFS to decline in the August release. We are simply not

sure how much weight to put on this data, particularly in light of the ONS

suggesting additional data quality issues in this, and a couple of incoming prints.

It is not that it really matters if the jobless rate is 4.8% or 5.1% - every economic

release is, after all, an estimate, with an uncertainty band. Rather, quality issues and

excess volatility in the monthly data make it hard to assess how fast – if at all –

slack in the UK labour market is building. This means turning points can be missed,

and pay data mis-interpreted.