Italy: Employment continued creeping up in July – ING

Paolo Pizzoli, Senior Economist at ING, explains that Italy’s employment data for July point to a continuation of a domestic demand-driven recovery over 3Q17 as lingering asymmetries in the labour market look set to become part of the debate in the upcoming electoral campaign.

Key Quotes

“July employment data, released yesterday by Istat, provides the first batch of hard evidence for the third quarter.”

“Seasonally adjusted data shows that in July employment increased by 59k (or 0.3% MoM) and unemployment by 60k (or 2.1% MoM), resulting in a marginal increase in the unemployment rate to 11.3% (from 11.2% in June). The labour force reached a new high, thanks to a 115k decline in the number of inactives, which we tend to interpret as an indication of an increased perceived possibility of a successful active job search. The decline in the unemployment expectations component as shown in August’s consumer confidence data provides indirect comfort to our interpretation. At 26m headcounts, the labour force is now back to pre-crisis levels: this was made possible by a 2% increase in labour participation since the Great Recession days.”

“The breakdown of yesterday’s data shows that new employment is now predominantly in the form of temporary jobs rather than in open ended contracts. This is likely happening as a consequence of the phasing out of past tax incentives for open ended fresh contracts, and represents an increasingly political issue. Unsurprisingly, in a pre-electoral year, job (in)security is gaining centre stage in the debate which will bring to the budget season.”

“Data also shows that youth unemployment (15-24 age bracket) remains an unresolved issue. At 35.5% it has receded somewhat from the 1Q14 46.2% peak, but remains uncomfortably high. At the same time, the strong dynamics of the 50+ age bracket both in terms of the participation rate and in terms of sheer employment provides clear evidence of the impact of past pension reforms, which raised the bar for old age pension eligibility. Inter-generational issues will likely be part of the next electoral campaign.”

“The main take-away from the July labour market release is that, at the start of the third quarter, employment dynamics has not lost momentum and should remain the main driver of nominal disposable income. With the ample slack in the labour market and the disinflationary impact of the stronger euro capping any short-term acceleration in core inflation, real disposable income developments should remain conducive to a continuation of the ongoing recovery, at least in its private consumption component.”