Eurozone Jobless Figure Falls 8,000 in July, Keeping Unemployment Rate at 10.0%

The number of jobless across the Eurozone edged down by 8,000 in July. This was the first decline since March 2008, although the rise in Eurozone unemployment had previously slowed appreciably. Indeed, the number of jobless across the Eurozone rose just 3,000 in June, and by a modest 91,000 overall in the second quarter of 2010. This was down substantially from an increase of 203,000 in the first quarter. July's 8,000 drop took the number of Eurozone jobless down to 15.833 million, from the June peak of 15,841. This peak was the highest level since the Eurozone's inception in January 1999. It was also up by 4.873 million from the five-and-a-half-year low of 10.968 million seen in March 2008.

The stabilisation in the number of Eurozone unemployed indicates that markedly improved Eurozone growth since early-2010 and a significant firming in business confidence in the first eight months of the year is now increasingly feeding through to help the labour market. Furthermore, Eurozone labour markets are still benefiting in a number of countries from government job-support schemes, which were introduced in 2009 to try and limit the damage to employment coming from the deep, extended recession. However, the current overall stabilisation in Eurozone unemployment marks significant differences between individual countries' labour markets. For example, German unemployment has trended down markedly overall during 2010 so far, while unemployment is continuing to rise significantly in Greece, Spain, and Ireland.

The rise in the number of Eurozone jobless had actually spiked back up to 203,000 in the first quarter of 2010, from 101,000 in the fourth quarter of 2009 as labour markets were hurt by Eurozone economic activity stalling around the turn of the year. Prior to this, the rise in Eurozone unemployment had moderated appreciably in the second half of 2009, reflecting the fact that the Eurozone exited recession in the third quarter of last year. Specifically, the number of Eurozone jobless rose by 494,000 in the third quarter of 2009, 564,000 in the second quarter, and 1.690 million in the first quarter. Persistent contraction in Eurozone economic activity between the second quarter of 2008 and that of 2009, in addition to depressed business confidence, pushed up unemployment across the Eurozone. Furthermore, the rate of Eurozone economic contraction was very sharp in the fourth quarter of 2008 and the first quarter of 2009.

Unemployment Rate Stable at 12-Year High of 10.0%

The Eurozone unemployment rate stood at 10.0% for a fifth month running in July, its highest level since July 1998, and up from 9.9% in February and 9.8% at the end of 2009. It is also up from 9.5% in mid-2009, 8.2% at the end of 2008, and 7.1% in March 2008 (the lowest level since the Eurozone was formed in 1999). The jobless rate in individual countries during July ranged from 3.8% in Austria to 20.3% in Spain, according to Eurostat data (which can vary significantly from national statistics). Slovakia had an unemployment rate of 15.0%, followed by Ireland (at 13.6%), Portugal (10.8%), France (10.0%), Belgium (8.9%), Finland (8.5%), Italy (8.4%), Cyprus (7.1%), Germany (6.9%), Slovenia (6.8%), Malta (6.5%), Luxembourg (5.3%), and the Netherlands (4.4%). The latest comparable data show an unemployment rate of 11.0% in Greece during the first quarter of 2010.

Employment Also Stabilised

Meanwhile, the latest Eurostat data show that Eurozone employment was flat quarter-on-quarter (q/q) in the first quarter of 2010, with 144.3 million people in jobs. Eurozone employment had previously contracted for six successive quarters, including drops of 0.2% q/q in the fourth quarter of 2009, 0.5% q/q in the third and second quarters, and a record fall of 0.8% q/q in the first quarter. In total, Eurozone employment fell by 2.721 million in 2009. Consequently, the year-on-year drop in Eurozone employment moderated to 1.2% in the first quarter of 2010, from 2.0% in the fourth quarter of 2009, and 2.3% in the third quarter.

More recent evidence from the Eurozone purchasing managers' manufacturing and service-sector surveys point to employment edging up. Specifically, the service-sector employment index stood at 51.6 during July, in the third month running that the index had been modestly above the 50.0 level indicating unchanged employment. This followed 22 months of sub-50 readings. Similarly, the purchasing managers' manufacturing survey indicated that employment in the sector rose slightly for a third month running in July, after 23 months of falls, as the index stood at 51.1.

Outlook and Implications

Despite Eurozone unemployment edging down in July for the first time since early 2008, IHS Global Insight suspects the number of jobless will rise modestly further. However, the situation is likely to vary markedly across countries. Although Eurozone GDP growth picked up appreciably to a decent 1.0% q/q in the second quarter of 2010, activity seems likely to slow anew over the coming months, and could well be pretty muted during much of 2011. Meanwhile, many of the government measures that have been adopted across the Eurozone to support employment have either been wound down or will be over the coming months. Furthermore, public-sector jobs are likely to be pared in a number of countries going forward—particularly in 2011—as part of the austerity measures that are increasingly being implemented.

Companies remain under serious pressure to keep their labour forces as tight as possible in order to contain their costs in the face of squeezed margins, still relatively muted overall and bumpy demand, and intense domestic and international competition. In addition, given how difficult and costly it can be to lay off workers in many Eurozone countries, companies will be reluctant to take on new workers until they are confident that the recovery will hold up for an extended period and can gain momentum. In the near term at least, confidence in growth prospects is likely to be limited by periodic flare-ups in the Eurozone debt crisis, tighter fiscal policy increasingly taking effect, and concerns that global economic activity is moderating.

Consequently, we suspect that firms will generally maintain a cautious approach to employment levels over the coming months. For now, many firms are likely to try and meet any increase in business through making greater use of the workers they have. This is particularly likely to be the case in those companies that have held on to workers rather than laying them off by making use of government-support schemes and adopting such measures as wage freezes or pay cuts, extended unpaid leave, career breaks, and part-time work. Consistent with this, the European Commission's business and consumer survey shows that although employment expectations have improved across all sectors in the Eurozone during recent months, they are still relatively limited compared with long-term norms. For example, in the dominant services sector, the index measuring employment expectations over the next three months improved to +1 in July 2010, from a record low of -18 in March/April 2009, but this was still below the long-term average of +7; it was stable at +1 in August. On a more positive note, the corresponding index for Eurozone industrial companies climbed from -38 in March 2009 to -6 in July 2010, thereby moving above its long-term average of -13. It was also stable at -6 in August.