SA unemployment rate unchanged since December
The Labour Force Survey (LFS) reports a seasonally-adjusted (SA) unemployment rate of
6.8 percent in January, down from 6.9 percent in December. This was in line with consensus forecast (but higher than our estimate of 6.9 percent). Unadjusted, the unemployment rate (UNSA) was 7.3 percent in January, up from 6.5 percent in December. This was in line with consensus forecast and our estimate.
In January 2016, the unemployment rate was 7.0/7.5 percent, in SA/UNSA terms respectively.
Employment and labour force above our forecasts
Looking at the details of the LFS data (in SA terms), employment and the labour force in January were higher than our forecasts. Our forecast error for unemployment was minor, just a 1000 people. However, as we underestimated the labour force, the forecast error meant a 0.1 percentage point error on the unemployment rate.
Limits to how low the unemployment rate will go
As we have pointed out for years, one of the most vital aspects of the Swedish labour market is the rapid compositional shift, where the group of Swedish born people at working age is trending sideways; this will decrease further, while there is a steep rise for the foreign-born group. As the employment rate for the group of those foreign-born - at the aggregate level - is clearly and persistently over the cycle, much lower than the rate for Swedish born, this puts a restriction on how low the unemployment rate can reach. In recent years, labour force participation has seen a strong rise. For the foreign-born population, this rise has been even stronger, which has brought the labour force participation for the two groups (domestic and foreign born) to the same rate. Given the strong economy over the past year, we believe the situation of a high vacancy rate, rising recruitment and the slow decrease in unemployment suggests a 'lack of (qualified) supply' rather than 'lack of demand'. Hence, most of the unemployed will most likely remain unemployed. Ahead, we cannot see good prospects for the unemployment rate to lower, for instance, below 6.5 percent. Our forecast is for the unemployment rate to increase slowly , most likely prior to year-end 2017.