Encouraging fall in Eurozone unemployment

The latest euro-zone unemployment data offered hopes that the slow recovery in the region's labor market has not reversed. But the bigger picture is that unemployment remains too high to boost wage growth and inflation. 

After June's (downwardly-revised) 4,000 rise in the number out of work, July's 213,000 drop certainly came as a relief. The drop was sufficiently large to reduce the jobless rate to 10.9%, its lowest level since February 2012. Over the past year, the number of unemployed has fallen by over a million.

"The euro-zone's labor market recovery is unlikely to gain much pace over the coming months. For a start, the employment components of survey indicators such as the EC Survey and composite PMI only nudged up in August and remain consistent with pretty weak annual employment growth", says Capital Economics in a report on Tuesday.

The final reading of August's euro-zone manufacturing PMI revealed a small fall from the flash estimate to 52.3 and indicates very limited growth in industrial production. While Greece's PMI rebounded to 39.1, after July's record low of 30.2, the index still points to a sharp contraction in industrial activity there. The fall in the headline rate is certainly encouraging, it still masks wide variations between countries, notes Capital Economics. 

Germany's unemployment rate was just 4.7% in July and national data for August suggests that it will remain at record low levels. But, despite recent falls, Spain's rate stands comfortably above 20% and Greece's rate was 25% in May.