EU jobless numbers drop by most since pandemic hit

The number of unemployed people in the EU dropped by 382,000 in May, boosting optimism about a rebound in the region’s labour market as manufacturers said they were hiring at the fastest rate for two decades.

The third consecutive monthly fall lowered the bloc’s unemployment rate from 7.4 to 7.3 per cent, Eurostat said on Thursday. The jobless rate has fallen from a peak of 7.7 per cent in September last year, but is still above a pre-pandemic low of 6.6 per cent.

Claus Vistesen, economist at Pantheon Macroeconomics, said after May’s “whopping” fall in EU jobless numbers to 15.3m, the unemployment rate was “clearly on a downward trajectory, having fallen in each of the past three months”.

European manufacturers said they were taking on new employees at the highest rate for at least two decades, according to the monthly IHS Markit purchasing managers’ index (PMI) survey published on Thursday.

The announcements are the latest upbeat signs for Europe’s labour market as people start to return to work after millions were put on state-subsidised furlough schemes last year.

IHS Markit said the hiring intentions of eurozone manufacturers it surveyed in June had increased at the fastest pace in the 24-year history of the PMI survey. Austrian and Dutch companies led the way in job growth.

“We have also seen the expansion of capacity via record employment growth and greater capital expenditure on business equipment and machinery,” said Chris Williamson, chief business economist at IHS Markit.

The improving jobs data could add to economists’ doubts about whether a recent rise in inflation could be more persistent than the European Central Bank expects, especially if the higher cost of living and falling jobless rate fuels larger wage increases.

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

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

The coronavirus-induced government furlough schemes that supported millions of jobs were excluded from Thursday’s figures, which means the official data is skewed from being a fully comprehensive measure of the labour market’s health.

However, national data showed the number of workers paid with government money was also falling. On Wednesday, German data showed the number of furloughed workers dropped to 2.3m in April, down from almost 6m a year earlier.

Similarly, in France, the number of furloughed workers declined to 2.3m in May from 3m the previous month. In Spain, the number of furloughed workers fell to 540,000 at the start of June, down from 3.5m in April 2020.

More timely sentiment indicators support the brightening outlook. The European Commission’s monthly business survey, released earlier this week, showed employment expectations at eurozone companies rose to the highest level since 2018 in both the services and manufacturing sectors.

Data from Indeed, the employment website, also pointed to rapidly rising online job vacancies in June across the eurozone’s largest economies.

Many economists had feared that Europe’s jobless numbers would rise this year as furlough schemes are gradually withdrawn and Italy’s ban on firing is lifted in mid-August.

“While there is a chance that some workers may lose their jobs as government support for firms is tapered, we think this is likely to be small,” said Jessica Hinds, economist at Capital Economics. “The strength of the recovery provides hope that the jobless rate will continue to fall from here.”

Economists recently revised down their forecast for eurozone unemployment to just above 8 per cent this year and next year, down from a peak 9.4 per cent forecast in November last year and the lowest since the start of the pandemic, according to Consensus Economics, a company that average expectations from leading forecasters.

Line chart of By date of forecast, % showing Economists are revising down their unemployment forecast for this year and the next

Despite the rapidly improving job market, upward wage pressures remain subdued across most of the eurozone. A small proportion of businesses reported labor shortages were 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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