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Europe's job market is giving some hope to the region's economic story, which has been dominated by a deepening slump in manufacturing that's tipped Germany close to recession.
Figures Monday showed the euro-area unemployment rate fell to 7.4% in August, the lowest in over 11 years. Italy reported an unexpected drop to 9.5% and Germany saw the number of people out of work decline for the first time since April. However, Germany also saw a decline in vacancies, a sign of caution among companies about hiring, and inflation in Europe's largest economy slipped below 1% for the first time since 2016.
While the labor market is a lagging indicator, the figures show it's so far resisting weaker global demand and a contraction in industry. That's good news for consumer spending and the services sector, which continues to show growth.
“As one of the main drivers of service sector growth, the labor market has taken center stage in predictions about a looming recession,” ING economist Bert Colijn said. “If unemployment continues to come down at a decent pace, this will boost household incomes and in turn fuel domestic demand.”
The relative buoyancy of the job market may reinforce the view among some that the economic situation isn't as bad as feared. European Central Bank policy makers are already in disagreement over their response to the threat of a deep downturn.
Read More: Lagarde Inherits ECB Tinged by Bitterness of Draghi Stimulu
The ECB unveiled a broad stimulus program earlier in September, but the inclusion of quantitative easing in the ECB measures stimulus sparked dissent in the ranks of officials.
Pointing to job numbers may not be enough to allay concerns about the outlook. Reports on Tuesday will probably confirm a worsening situation for manufacturing across the bloc and little change in inflation from the low levels that motivated the ECB's action. The euro-area rate is forecast to remain stuck around 1% in September.
What Bloomberg's Economists Say...
“The euro area's fragile recovery is being blown off course by headwinds from abroad. Bloomberg Economics expects the bloc to avoid recession, but the risks of a contraction are elevated -- a trade spat with the U.S. would cause some serious damage.”
--David Powell, Maeva Cousin
Read the full INSIGHT
French Finance Minister Bruno Le Maire will travel to Berlin Tuesday to implore the German government to act now to invest its surpluses and give the economy a shot in the arm. So far, Germany has said it sees no reason to act.
To contact the reporter on this story: William Horobin in Paris at whorobin@bloomberg.net
To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Zoe Schneeweiss
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