The registered unemployment rate remained at 2.7% in August, in line with expectations, according to figures of the labor ministry. In annual terms, the unemployment rate fell by 0.4pps, being close to its record low from June. The number of job seekers decreased by 11.2% y/y in August, weakening only slightly from the 11.4% y/y drop seen in July, even though it was the slowest decline in just over four and a half years. Given that the number of unemployed was already low last year, however, the decline rate remains impressive. Something similar was reported with job vacancies, whose number rose by 11.9% y/y in August, inching up from an 11.8% y/y increase in July. Vacancies have been growing at a double-digit rate over the past six and a half years, and pressing labor shortages are not going to change that soon. The ratio of job seekers to available vacancies decreased slightly again, reaching 0.58 in August, and it has remained under 0.6 over the past four months. While we expect slower economic activity to push the ratio upwards, what we will see initially is only a modest increase in unemployment, because lower demand will eat away labor shortages first.
Newly registered job seekers fell by 4.4% y/y in August, but it is not surprising to see such decline in the summer months, when the labor market is usually much less active. There were also fewer people taken off the registry (down 6.2% y/y), as well as fewer people who found work (down 5.6% y/y). There is still a robust increase in the number of people who found employment through the state employment office, but it reflects the desperation of some employers, who are using every available recruiting option due to labor shortages. At any rate, people who found employment through the state employment office are about 40% of total, the ratio rising from its usual 20-25%. Unfortunately, we don’t have a breakdown by profession, but we reckon these are mostly unqualified jobs, for which employers have had difficulty finding candidates lately. Newly announced vacancies fell by 2.7% y/y, also typical for August, while filled-in positions kept growing at double digits. On a negative note, newly vacated positions (not due to layoffs) kept rising fast, up 85.1% y/y, which reflects people retiring or leaving for a new job.
Overall, the labor market remains as tight as it has been this year. Labor shortages persist at all levels and we don’t see them drying up soon. This has been pushing labor costs upwards, as it can be seen from the latest wage data (up 7.2% y/y in nominal terms in Q2’19), which can threaten smaller companies in case the economy slows down faster than anticipated. We believe a gradual slowdown could be beneficial, as it will be an argument for dialing down wage growth, as well as reduce labor shortages. However, the situation remains, as a sharp external shock could lead to financial difficulties for smaller companies, thus pushing unemployment upwards. Our expectation is for a gradual slowdown at this point, which suggests unemployment will remain low, though probably higher than current levels.