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Fast Comment SwedenThe best days in the labour market are behind us; new evidence in July unemployment data

  1. Unemployment has already started to rise, even though the economic boom has only recently begun to diminish
  2. No major slump in other labour demand data, yet
  3. Will we see signs this afternoon that fiscal policy will react to deterioration?
Unemployment has already started to rise, even though the economic boom has only recently begun to diminish
The July data from the Labour Force Survey shows unemployment surprisingly soared to 7.1 percent (seasonally adjusted, 6.9 percent actual). This was well above our expectations and the consensus view (both 6.5/6.0 percent), but more importantly the high level seems to be the last nail in the coffin for this cycle and confirms that the best days are already behind us. A gentle reminder, however, that these are uncertain summer statistics, e.g. the LFS shows temporary employment much lower than a year ago, while the Public Employment Service reported a record high number of summer jobs available this year. More data points are needed to establish a more certain trend.
No major slump in other labour demand data, yet
In our new Global Macro Forecast, fresh off the press yesterday, we revise unemployment upward and foresee a more material rise in unemployment next year. By then, the business cycle downturn will have had time to hit labour demand hard. The background to our revised view is that employment suddenly stopped rising in the first half of 2019. Because more and more people are joining the labour market, the lack of open positions has caused a rise in unemployment already and that contradicted our April macro report, in which we predicted a more favourable labour market in 2019. So why did we not pencil in a more dramatic unemployment rise in yesterday's forecast report? The answer is that other labour demand indicators do not support such a fast turn for the worse (see graphs below).
Will we see signs this afternoon that fiscal policy will react to deterioration?
In recent years, our unemployment forecasts have otherwise been fairly pessimistic, owing to matching problems and the challenge for the large group of new Swedes of gaining a foothold in the labour market. The Riksbank already holds a pessimistic view on labour market trends, but the big question currently will be how the government and fiscal policy might react to the deterioration? Watch out for Finance Minister Magdalena Andersson's press conference and new macro forecast this afternoon!


July unemployment: Volatile monthly data will create headlines, and the trend is also on the rise. Summer data is uncertain though...



...And so far the number of permanently employed is on the rise...




...While several labour demand indicators remain reasonably close to normal levels. That should mean this autumn will bring some better unemployment outcomes, before it get worse again next year. 





Disclaimer

Johan Löf

Senior Economist

Sweden

jolo22@handelsbanken.se

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