Really, the UK Unemployment Report Wasn’t Bad

Usually, a labor market report showing modest job growth and a flat unemployment rate would barely rate attention. Such data are generally a veritable snoozefest, with no forward-looking implications-despite what you will read most everywhere else, job markets follow broader economic trends at a very late lag, not the other way around. But these are not normal times. For one, pundits globally are looking for a cloud in every silver lining, eager for evidence to support their "eek the global economy is about to roll over and die" warnings. This is especially true in the UK, as politicians use every last data point to support their preconceived notions about the economic implications of "Brexit"-the scarier and more colorful, the better. And so the very benign, very boring February UK Labour Market Report attracted all sorts of attention, solely because it showed a slight increase in the number of unemployed people. Some called it a sign of creeping weakness. Others called it evidence Brexit risk is taking a toll. In our view, neither of those statements is true. Dive into the data, and there is more to cheer than jeer.

We probably wouldn't even be writing this article if Work and Pensions Secretary Stephen Crabb hadn't said the following in a BBC interview: "There will be companies right now today who have been looking at major investments into the UK who are hanging back and considering whether that's the right thing to do. So of course that will have an impact. Now, I'm not saying that the increase of 21,000 in unemployment is as a direct result of that, but it's an example of the kind of really gritty questions that those people who say Britain should leave the single market need to respond to and explain why their vision of coming out of the single market actually makes the picture better and enhances job opportunities for British workers." That statement caused a firestorm in the Conservative Party, pitting the pro- and anti-Brexiters against each other once again. It was also widely lampooned by the press, as the data in question come from the December - February period, all but six days of which occurred before PM David Cameron scheduled the EU referendum and Brexit talk became daily front-page fodder.

But we'll leave it to others to pillory the political cynicism on both sides of the Brexit debate. We remain neutral and will merrily concede convincing arguments on both sides. Heck, good old Mervyn King, the former BoE Chief, might have said it best Wednesday: "I think it's very important that people should not exaggerate the impact, either of staying in or leaving. I do worry that people on both sides treating this as a public relations campaign rather than as a debate on the future of our country are inclined to exaggerate because they feel they are selling a position." Economically, whether the UK stays or leaves will probably be a footnote in 100 years' time.

But when politicians spin yarns, investors see it, and it hits sentiment-hence why we have spent so much time these past few weeks debunking claims of Brexit doom. We don't mean to influence the debate, and we worry at times that we occasionally appear pro-Brexit despite our best intentions, but it's important for investors to be able to accurately assess the impact of a "Remain" or "Leave" vote on capital markets. The popular narrative of Brexit doom, in our view, risks doing investors a disservice: inspiring them to dump UK stocks if Brits pick Brexit on June 23. Deep fear is abundant and therefore baked in to prices. A much more benign outcome would be a relieving surprise and probably quite bullish. Selling out of fear could be a very costly error. (Of course, this will all be moot if voters decide to stay-it's very much a toss-up and will likely remain so until the bitter end.)

With all of that said, let's look at that unemployment report, because timing isn't the only reason those Brexit-risk-job-destroying claims are basically nonsense. Even if this report covered February-April and showed the exact same numbers, it wouldn't be a sign of creeping Brexit risk. Or economic weakness. Or anything terribly bad, really. Yes, the number of unemployed rose by 21,000. But the number of employed people rose by 20,000. The employment rate for people aged 16-64-total employed divided by total population-hit 74.1%, the highest on record.^[i] Total jobless benefits claims fell in all three months (though they rose a tick in March). So why are there more officially jobless people? Same reason the number of unemployed Americans frequently rises alongside rising employment: More people joined the labor force. Total population rose by 81,000 during those three months, while the number of "inactive" people aged 16-64-those not working and not looking for work-fell by 53,000. That brought the economic inactivity rate to 21.7%, the lowest on record.

That means 53,000 students, stay-at-home parents, caregivers and previously discouraged workers rejoined the rat race between December and February, extending their steady return to the job market since early 2011. This is not the sort of thing you see when labor markets and economic prospects are worsening. That tends to discourage potential workers, not motivate them. If Brexit risk were really destroying job markets, it would be very odd indeed for tens of thousands of previously disengaged workers to wake up with a spring in their step, put on pants and pound the pavement in search of employment. People return to the labor force when businesses are hiring, not when they're cutting back.

Again, this is all backward-looking-nothing in any jobs report ever will tell you where the economy is going. Jobs data only confirm what other metrics like GDP showed months earlier. But as far as reasons to be bearish about Brexit go, this simply isn't one. Or a reason to fear the end of Britain's expansion is nigh. It merely confirms that a few months ago, things were fine.