Declining number of unemployed in the EU strengthens hopes for a rebound in the labor market

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The number of unemployed in the EU fell by 382,000 in May, bolstering optimism about a rebound in the region’s labor market as manufacturers said they were hiring at the fastest pace in two decades.

The third consecutive monthly drop took the bloc’s unemployment rate from 7.4 to 7.3%, Eurostat announced Thursday. The unemployment rate fell from a high of 7.7 percent in September last year, but is still above a low of 6.6 percent before the pandemic.

Claus Vistesen, economist at Pantheon Macroeconomics, said that after the “huge” drop in the number of unemployed in the EU to 15.3 million in May, the unemployment rate was “clearly on a downward trajectory, having fallen over the years. of each of the last three months “.

European manufacturers have said they are hiring new employees at the highest rate in at least two decades, according to the monthly IHS Markit Purchasing Managers Index (PMI) survey released Thursday.

The announcements are the latest encouraging signs for the European labor market as people start to return to work after millions were placed on state-subsidized leave programs last year.

IHS Markit said hiring intentions of eurozone manufacturers surveyed in June rose at the fastest rate in the 24-year history of the PMI survey. Austrian and Dutch companies have paved the way for job growth.

“We have also seen capacity expansion through record employment growth and increased capital spending on commercial machinery and equipment,” said Chris Williamson, chief economist at IHS Markit.

Improving employment data could add to economists’ doubts about whether a recent rise in inflation could be more persistent than predicted by the European Central Bank, especially if the cost of living is higher and the falling unemployment rates fuel larger wage increases.

In the eurozone, the unemployment rate fell to 7.9% in May, from 8.1% the previous month and well below the peak of 8.5% in August of last year.

Youth unemployment in the EU also fell to 17.3 percent in May, from 18.2 percent the previous month.

Coronavirus-induced government leave programs that have supported millions of jobs were excluded from Thursday’s figures, meaning official data is not a fully comprehensive measure of the health of the labor market.

However, national data showed that the number of workers paid with government money was also declining. German data on Wednesday showed the number of workers on leave fell to 2.3 million in April, from nearly 6 million a year earlier.

Similarly, in France, the number of workers on leave fell to 2.3 million in May from 3 million the previous month. In Spain, the number of workers on leave fell to 540,000 in early June, from 3.5 million in April 2020.

More timely sentiment indicators support improving outlook. The European Commission’s Monthly Business Survey, released earlier this week, showed that employment expectations in euro area companies have reached their highest level since 2018 in the service and construction sectors. manufacturing.

Data from Indeed, the jobs website, also indicated a rapid increase in online job vacancies in June in the euro area’s largest economies.

Many economists feared that the number of unemployed in Europe would rise this year as leave schemes are gradually withdrawn and the layoff ban imposed by Italy is lifted in mid-August.

“While there is a risk that some workers will lose their jobs as government support for business wanes, we believe it is likely to be low,” said Jessica Hinds, economist at Capital Economics. “The strength of the recovery gives hope that the unemployment rate will continue to decline from here on out.”

Economists recently revised their forecasts for unemployment in the euro area down to just over 8% this year and next, from a peak of 9.4% expected in November last year and most low since the start of the pandemic, according to Consensus Economics, a company that averages expectations from top forecasters.

Line chart of By forecast date,% showing economists downwardly revising their unemployment forecasts for this year and next

Despite the rapid improvement in the labor market, upward pressure on wages remains subdued across much of the euro area. A small proportion of companies reported labor shortages holding back production in June, according to the European Commission survey. The highest national rate was in Germany, where only a fifth of companies reported such problems.


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