The Job Market’s Doing A-Okay in the U.K.!

It looks like Uncle Sam ain’t the only one enjoying better job market conditions this holiday season! The most recent U.K. jobs data just delivered an upside surprise earlier this week as the number of claimants for November dropped by 3,000 instead of printing the expected 5,900 increase.

On top of that, the previous month’s claimant count change was revised down from 10,100 to just 6,000, showing that the number of those seeking unemployment benefits was much smaller than initially reported. These upbeat results were enough to keep the U.K. jobless rate steady at 7.8% even as most analysts projected an increase to 7.9%.

Digging a little deeper into the numbers from the International Labour Organization would reveal that joblessness dropped by 82,000 since October, its largest drop since 2001. However, components of the report would reveal that the private sector has been picking up most of the slack in the labor market as the government has actually shed jobs for the 12th straight quarter.

Austerity measures are mostly to blame for the continuous decline in hiring in the public sector, as the government plans to cut roughly a million jobs by 2018 in order to reduce spending. In November, the 24,000 decrease in hiring by the public sector was offset by a 65,000 increase in private sector employment.

With the good comes the bad

On a less positive note, the Office for National Statistics reported that average earnings excluding bonuses are only increasing at a rate of 1.7% a year. That earnings are on the rise is normally cause for celebration, but once you consider the fact that the cost of goods are increasing at 2.7% a year, it’s easy to see why this just isn’t enough.

With real wages on the decline, the average worker may be earning more, but he’s also getting less bang for his buck these days. No wonder BOE Chief Economist Spencer Dale thinks that household and families are still “much worse off” than they were 5 years ago!

Outlook for the economy and the pound

In assessing the job market’s effects on the U.K., it’s also important to consider its potential impact on other aspects of the economy. Improvements in the labor market tend to have a positive spillover effect, as job gains often lift consumer confidence, which in turn usually supports consumer spending. This could very well give the retail sector the boost it needs this holiday season.

Taken as a whole, it’s hard to deny that these employment reports are good news for the U.K. Hence, from a fundamental standpoint, it should also be good for the pound. This bit of news, coupled with the risk-friendly FOMC statement, could keep GBP/USD afloat as we end 2012, especially since volatility is expected to die down in the last few weeks of the year.