Amidst all the noise, it is worth taking a step back, to look at the bigger picture. Labour markets have so far been resilient to higher interest rates and remain at secularly tight levels. Some claim central banks have waited too long to begin cutting rates. But this view is not supported by the hard data. Signs of ‘weakness’ in labour markets have been exaggerated. The UK is a case in point. The quarterly Workforce Jobs survey largely goes under the radar, because it is published with a greater lag. But the data for Q1 was once again strong. Total workforce jobs in the UK jumped 298k in Q1, the largest quarterly increase in a year, to a record high.
The Eurozone jobs market continues to defy expectations too, despite the gloom surrounding industry. The jobless rate fell to a record low of 6.4% in April. The two-month drop (-205k) in the level of unemployment was the largest since February 2022. These figures have been accompanied by record employment levels, and rising activity rates across the Eurozone. The job vacancy rate for the Eurozone also remains far above its pre-pandemic rate. As a result, wages pressures are persisting, keeping services inflation elevated.
In the US, the uptick in initial claims appears to have been exaggerated by seasonality issues: the 4-week moving average for the unadjusted initial claims data is still running below last year’s level. Continuing claims are commensurate with a small uptick in the jobless rate, but again, this needs to be put into context: the insured unemployment rate was just 1.21% in the week ending June 1st, which is in-line with pre-pandemic rates.
The clamour for rate cuts continues, but for now, labour markets remain tight globally, and this should put a limit on central bank easing this year. To be clear, the political situation in Europe is concerning. The turn towards populism, and the right, will ultimately be negative for the bond market, if the green agenda is reneged on, and fiscal consolidation postponed. For the record, the Eurozone general government deficit is widening, reaching 4.1% of GDP in Q4 2023. The French general government deficit totalled 5.5% of GDP in 2023; in Italy, the deficit was still 7.4% of GDP.
