In July, for the second month in a row, the number of unemployed has decreased in the Euro Area. We can see this change of the first chart below. This number was up every month during 25 months from May 2011 to May 2013. This is a real change. It’s a signal that the business cycle profile is changing. Companies’ firing behavior has changed. That’s what is important as it is the translation on the labor market that their expectations have changed.
The unemployment rate gives a similar signal as it is not increasing anymore. For the last 5 months it was stable even if it is at a historical high.
What is important in the short run is to try to catch the change in behavior and may be this is currently the case.
On Chart 2 we see that the dynamics is now different. Of course it is still at a very high level meaning that the recovery has not started yet.
On Chart 3 is the 3 month change of the number of unemployed. After a strong rise in 2011 at the start of the recession the change is just 1.7% at annual rate in July.
Looking at the European economic situation we see that the momentum is changing. We’ve noticed since May that companies’ surveys were less pessimistic and August numbers are now positive if we look at the latest Markit survey (see here). But this does not mean that the recession story is over. We’re at the point where the momentum changes and there is still a lot to do to be in a real recovery. To start imagining being in a real recovery we need stronger surveys and the reduction in the number of unemployed must show persistence.
Moreover the possible change in trend mustn’t dampen the will to make structural reforms. The economic situation in Spain, Italy, Greece, Portugal, Ireland and even France is not strong enough in each of these countries to imply endogenous growth. Spontaneously none of these economies will have the capacity to recover alone without structural reforms. The target is to be able to improve the autonomy of each economy.
So these numbers on the labor market are clearly good news but it is just the beginning. There is still a lot to do but now the trend is on the upside – it will be easier
Chart 1 – Number of Unemployed – Monthly Change
Chart 2 – Number of Unemployed
Chart 3 – Number of Unemployed – 3 Month Change
