A little early for such optimism

The overview of the labor market in the month of June, seen in terms of a fall in the number of people registered as unemployed, has contributed to a feeling of increased confidence in the economy. But this sentiment will only be confirmed when figures from the Active Population Survey (EPA) for the second quarter of this year are released.

Meanwhile, the government is playing with two different cards. Formally it is appealing to prudence, but in its public statements it is conveying an unmistakable feeling that we are already witnessing “the beginning of a recovery.” It thus runs the risk that in September or October, when the tourist season ends, the longed-for recovery will be found to have been so much hot air, giving way to a disappointing let-down.

The major data do seem to point to optimism. In June, the number of people registered as unemployed dropped by 127,248. That means that for four months running, the figure has declined. The political temptation to begin talking about an economic recovery is, naturally, very intense.

But the reality is more complex. In fact, if the data are seasonally adjusted, unemployment is found to have increased by almost 1,000 people, while registrations with the Social Security system, which in absolute terms rose in the course of the month by 26,853 people, has in fact registered a fall of 7,324. Nor has hiring grown in the month of June.

In this context it seems necessary to explain why we have seen such a dramatic fall in unemployment, one that has not been accompanied by any significant rise in Social Security registrations (which came in well under the forecasts of 55,000 for the month), while a net drop has been seen in hiring. These inconsistencies suggest that the figure for registered unemployment that the government is currently using will turn out to be notably lower than the figure that will eventually appear in the EPA.

Even without taking seasonal adjustments into account, the “despondency effect” continues to drive some people out of the labor market; others register as self-employed (and thus cease to count as unemployed); early retirements have increased; and many jobless people have exhausted the period during which they are entitled to benefits, meaning they no longer have any incentive to register.

Optimism in check

In spite of all these factors that theoretically result in a drop in statistical unemployment, the registered unemployment rate forecast for this year still stands at 27 percent, and only in the last quarter will it be seen whether it must be upwardly modified.

Thus optimism — let alone euphoria — must be kept in check until such time as the change of trend is confirmed, and a net creation of employment becomes a reality. Because at this time all we can venture to say is that the economy appears to be close to “bottoming out” — that is, close to attaining the minimal year-to-year rate for this phase of the recession. Hence there may be some stretch of road ahead before recovery begins.