Unexpectedly low unemployment rate in June
The unemployment rate in June was 8.8 percent, up from 8.1 percent in May. This was somewhat lower than the consensus forecast (at 8.9 percent) and clearly lower our estimate (at 9.3 percent). In seasonally adjusted (SA) terms, the June unemployment rate at 7.5 percent meant a decrease (from 7.8 percent in May), which was unexpected to us. Our forecast was instead a small increase (to 7.9 percent). On top of the underlying (SA) forecast error, the positive seasonal effect (i.e. that of an ordinary increase in June) was slightly smaller than we calculated. But all in all, today's reading presents an unemployment rate far off from our forecast path.
Surprisingly strong employment
In essence, the lower-than-forecast unemployment in June follows from unexpectedly high employment.
All along 2012, the employment trend has been stronger than our anticipation. And based on the slowdown of GDP growth, we've held on to a forecast of weaker employment. This is something we think has been signalled also by indicators. However, we've gradually adjusted up our employment projection. Though, with unusually erratic monthly readings from the Labour Force Survey (LFS) in H1, trend determination has been a more open question than normally. This still is something of a question regarding today's data. Crumpling response rates in the surveys but also fluky panel effects can at times be a disturbance. Without any sharp opinion on such matters, we basically swallow the strong employment numbers as presented. Mechanically, this lowers our unemployment forecast slightly, but forward looking data should counteract some of the revision for H2.
Weakening in service sectors to dull job creation
Despite of an employment level so far in 2012 clearly higher than we have been expecting, indicators now present a stronger case for a more rapid stagnation in the Swedish labour market. Especially, indicators on service sectors (which are key to Swedish employment) suggest a clearly weaker H2 (than H1). Clearly, today's NIER barometer added to this rather negative outlook. Naturally, the timing of things is uncertain but as we move along in H2, we still believe in the y-o-y growth rate steadily moving towards negative territory. This shouldn't imply any extreme negative bounce, but we forecast a negative trend for employment soon to emerge. Considering today's and previous months' readings, the forecast weakening in the Swedish labour market is lagging more than we've been expecting. A reasonable forecast revision should include a lower unemployment rate in H2 but a higher such in early 2012, we think.