Seasonally adjusted employment:

2Q 2011: +0.3% q/q, +0.4% y/y

MNI survey median: +0.1% q/q
MNI survey range: flat to +0.14% q/q

1Q 2011: +0.1% q/q (revised from flat)
4Q 2010: +0.1% q/q (revised from +0.2%)
3Q 2010: flat q/q (unrevised)
—

PARIS (MNI) – Eurozone employment expanded much more than expected
in 2Q, as a pick-up in hiring in the services and construction offset a
slowdown in industry, Eurostat said Thursday.

Employment increased by roughly half a million or 0.3% in 2Q to
147.0 million. This was around 900,000 above the trough at the end of
2009 but still nearly three million fewer than at the pre-crisis peak in
the spring of 2008.

Across sectors, 2Q payrolls increased by 0.9% in business and
financial services, by 0.5% in trade, transport and communication and by
0.2% in both manufacturing and construction. Employment fell by 0.5% in
agriculture and was stable in public administration, health and
education.

Germany contributed the most to the active working force with a 2Q
gain of 0.4%, but Spain and Austria also registered a comparable
percentage gain that was outpaced only by Finland (+1.1%) and Estonia
(+0.9%). Quarterly increases of 0.3% were seen in France, Italy and
Slovakia. Pulling up the rear were Portugal and the Netherlands (both
+0.1%), Ireland (flat) and Slovenia (-0.3%). No results were available
for Greece, Belgium, Luxembourg, Cyprus or Malta.

At the same time, the number of people without work rose in 2Q by a
net 43,000 to 15.7 million, Eurostat reported earlier. July brought a
further increase of 61,000, and the trend is likely to accelerate as
economic activity loses further steam.

Outside the most dynamic Eurozone economies, employers are likely
to hesitate before expanding payrolls, given the mounting uncertainties
about future demand. Hiring prospects deteriorated in all business
sectors except construction in August, according to the European
Commission.

The PMI polls have also signaled a gradual slowdown in payroll
gains since spring, with only modest increases in industry and the
services in August. Gains in Germany and France offset further losses in
Italy, Spain and Ireland.

Professional forecasters surveyed by the ECB in July still expected
the Eurozone jobless to descend gradually in the next years, easing from
9.8% projected for this year to 9.5% next year and 9.2% in 2013.

The OECD highlighted last week the risk of “high unemployment
becoming entrenched” where jobless rates are high.

The likely deterioration of the labor market in most Eurozone
countries will add to social outlays and make deficit cuts more
difficult without further cutbacks in jobless benefits. Wage gains will
remain subdued and probably lag inflation for some time, leaving little
leeway for a significant recovery in consumption.

Even in Germany, where there are signs of labor shortages in some
sectors, pay accords so far this year have been remarkably moderate in
light of the wage restraint of past years. Fiscal consolidation and
sub-par growth will weigh on pay in peripheral countries.

The European Central Bank said Thursday it expected employee pay
gains to increase gradually while remaining moderate overall. This
would contribute to a “slight rebound” in unit labor cost growth.

“At present it is unclear to what extent the high HICP inflation
rates seen in recent months could trigger higher salary growth, after
the muted increases agreed in past years,” the central bank said in its
Monthly Bulletin.

“In some countries, existing wage indexation schemes that link wage
revisions to past inflation will most likely lead to higher wage
increases. More generally, however, there appears to be little scope for
stronger wage growth in view of the ongoing weakness in the labor
market.”

Labor cost pressures are “likely to remain contained in the medium
term in the light of only gradual labor market improvements,” it
predicted.

–Paris newsroom +331 4271 5540; email: ssandelius@marketnews.com

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