The general guideline that all economic data should be approached with caution is especially relevant to the recent employment statistics published by the Office for National Statistics.
The ONS has acknowledged that its previous approach to measuring the state of the job market was no longer applicable and has released “experimental” evaluations of employment, unemployment, and inactivity using various sources.
In practical terms, the traditional method of collecting data on the labor force, which involves interviewing individuals to determine their employment status, has been enhanced by incorporating payroll information from HMRC and the number of people receiving benefits.
The ONS has been making headlines lately for the way it calculates its data. In the previous month, it revised the UK’s growth rate during the pandemic and its aftermath, resulting in a significant increase. There are now concerns about the reliability of the latest employment figures.
According to Tony Wilson, the head of the Institute for Employment Studies, the data sources have faced problems in the past, making it concerning that they are now being viewed as more trustworthy than the official survey.
Other professionals in the job market shared similar thoughts. Allan Monks, a British economist at JP Morgan, stated that “These unconventional sources of data may not be directly comparable, and the number of claimants has not been a significant factor for several years due to changes in the welfare system.”
Since the experimental data does not completely align with the figures from the labor force survey, it becomes more difficult to accurately understand the situation.
The Bank of England has been faced with a difficult situation as it must decide on interest rates for next week, coinciding with a change in methodology. This could make the decision more challenging and may result in the monetary policy committee paying less attention to the official jobs data than they have in the past.
It is predicted by the financial markets that the Bank will maintain their current interest rates next week. Analyzing Tuesday’s data, it seems that the labor market is experiencing a decrease in growth, although not at a significant rate. There was a decrease of 82,000 jobs in the three-month period leading up to August, which is slightly less than the decline seen in the previous three months leading up to July.
The unemployment rate remained steady at 4.2% for the month, but this was due to an increase of 130,000 individuals who are no longer actively seeking employment in the three-month period ending in August.
The most recent labor market data from ONS may be subject to changes, but it aligns with recent reports indicating that the economy is stagnant. With 14 interest rate hikes increasing official borrowing costs from 0.1% to 5.25%, it was predictable that there would be a decrease in demand for workers. The only unexpected factor is that the labor market has remained strong for such a prolonged period of time.