Wednesday, September 1, 2021 5:58 AM EDT
The unemployment rate fell by 0.2 percentage points to 7.6% in July, continuing a rapid decline since economies reopened from the second wave. This adds to medium-term inflation pressures, which will no doubt fuel further hawkish concerns about ECB policy at next week’s meeting.
Pexels
The eurozone unemployment rate decreased to 7.6% in July. This is down from 8.2% in April as the monthly pace of reduction has been 0.2ppt a month since then. That rapid decline in unemployment has come on the back of a rapid return for labor demand from businesses as economies have reopened (EZU). This leaves eurozone unemployment just 0.5ppt above the record low of March 2021.
With more and more businesses reporting labor shortages as problematic to their output, a logical conclusion would be to say that labor market tightness has returned far more quickly than expected. In the short term, this is probably right, but the jury is still out for the medium-term. A misallocation of labor on the economic reopening is causing shortages to increase – also seen in the US – but the question is how long this will last. Furthermore, unemployment is still being kept artificially low by furlough schemes that have yet to end in most eurozone economies and cover a substantial amount of employment.
From here on it gets interesting. Countries are getting closer to ending furlough schemes and we’ll soon find out whether this will result in delayed restructuring and layoffs. If it doesn’t, labor market tightness could turn out to be more structural, which in turn would push wage growth higher. This is a key condition for more structural high inflation. Given the quick declines in unemployment of late, we do expect any unemployment increases after furlough schemes end to be moderate, bar any large economic setbacks, of course.
For now, though, wage growth remains below 2019 rates, so evidence of a price-wage spiral has yet to be seen. The next half year will be key in this regard. Still, the quick decrease in unemployment recently will no doubt add to hawkish concerns about the European Central Bank's policy next week.
Disclaimer: This publication has been prepared by the Economic and Financial Analysis Division of ING Bank N.V. (“ING”) solely for information purposes without regard to any ...
more
Disclaimer: This publication has been prepared by the Economic and Financial Analysis Division of ING Bank N.V. (“ING”) solely for information purposes without regard to any particular user's investment objectives, financial situation, or means. ING forms part of ING Group (being for this purpose ING Group NV and its subsidiary and affiliated companies). The information in the publication is not an investment recommendation and it is not investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Reasonable care has been taken to ensure that this publication is not untrue or misleading when published, but ING does not represent that it is accurate or complete. ING does not accept any liability for any direct, indirect or consequential loss arising from any use of this publication. Unless otherwise stated, any views, forecasts, or estimates are solely those of the author(s), as of the date of the publication and are subject to change without notice.
The distribution of this publication may be restricted by law or regulation in different jurisdictions and persons into whose possession this publication comes should inform themselves about, and observe, such restrictions.
Copyright and database rights protection exists in this report and it may not be reproduced, distributed or published by any person for any purpose without the prior express consent of ING. All rights are reserved. ING Bank N.V. is authorised by the Dutch Central Bank and supervised by the European Central Bank (ECB), the Dutch Central Bank (DNB) and the Dutch Authority for the Financial Markets (AFM). ING Bank N.V. is incorporated in the Netherlands (Trade Register no. 33031431 Amsterdam). In the United Kingdom this information is approved and/or communicated by ING Bank N.V., London Branch. ING Bank N.V., London Branch is deemed authorised by the Prudential Regulation Authority and is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. The nature and extent of consumer protections may differ from those for firms based in the UK. Details of the Temporary Permissions Regime, which allows EEA-based firms to operate in the UK for a limited period while seeking full authorisation, are available on the Financial Conduct Authority’s website.. ING Bank N.V., London branch is registered in England (Registration number BR000341) at 8-10 Moorgate, London EC2 6DA. For US Investors: Any person wishing to discuss this report or effect transactions in any security discussed herein should contact ING Financial Markets LLC, which is a member of the NYSE, FINRA and SIPC and part of ING, and which has accepted responsibility for the distribution of this report in the United States under applicable requirements.
less
How did you like this article? Let us know so we can better customize your reading experience.
