Bankia Studies | The Spanish economy has created more jobs than expected, allowing the unemployment rate to stabilise at record lows. The indicators suggest that the Covid-19 crisis had not yet infected the dynamism of the labour market. That said, the possible impact could be reflected in the coming months.
The economy created 273,000 jobs in February, at the same pace as the previous month. This significantly exceeds market expectations (175,000), as well as the average over the last six months. In year-on-year terms, employment expanded at a rate of 1.6%, the highest since January 2019.
With regard to sectors, the following data stands out: (i) the strong job creation in services, which corroborates the strength of the internal market; (ii) the new increase in construction, which reflects the good moment experienced by the sector, despite the lower temperatures in February, and (iii) the turnaround in the manufacturing industry, which has registered the first net increase in employment in the last three months.
The breakdown in services reveals that job creation was led by professional services, leisure, education and health. The latter reflects the increase in demand due to the coronavirus crisis. On the other hand, trade, transport and energy recorded a negative balance in net employment in February.
In addition, the households’ survey shows the unemployment rate felll by a tenth to 3.5%, a minimum since the end of the 1960s. Whatsmore, the activity rate remained stable at 63.4%, the highest level in the last seven years. This was led by the group aged between 25 and 54 years, which was considered the most productive. The employment ratio has also remained stable at highs since end-2008, during the global financial crisis. Both indicators suggest a further extension of the employment recovery amongst the population.
Wages grew at a year-on-year rate of 3%, which would mean a slight slowdown from the previous month, and still below the average for the last twelve months. The number of hours worked has remained stable at minimums since 2011.
On balance, the data confirms that the dynamism of the labour market remained intact in February, with no signs of contagion from the coronavirus crisis in China. The trend in wages is perhaps the only thing which seems to be of concern in recent months. That said, there is also no fear of a very negative impact on consumption in the short term, thanks to the moderation in inflation, as well as the increased labour participation in activity. Although the labour market usually lags behind GDP, its strength in the first two months of the year calls into question the recent and unexpected decision by the Federal Reserve to cut the reference rates by 50 bp. But the monetary stimulus should have an impact on maintaining lax financial conditions, which would help counteract the possible carry-over of the viral shock. Our central scenario maintains a relatively limited impact on the economy due to the virus crisis, with growth of around 1.8% for the year’s balance sheet. That said the risks are on the downside.