Unemployment always goes down in July in Spain. It just went up. Manufacturing PMI warns of coming recession
Unemployment is always supposed to go down in Spain in July becuase of summer tourism jobs. Not this year. The number has gone up by 3,230 people across the country. The surprising result comes after several months of strong jobs numbers for Pedro Sánchez's socialist-communist minority coalition government, which has seen the total number of officially unemployed people in Spain fall below three million for the first time since the 2008 economic crisis, as the economy recovered from the effects of the Covid pandemic.
Social Security Minister Escrivá tweeted "the economy kept creating jobs in July". A government spokesman said on Tuesday morning that the data "contstitute a warning" that "the crisis and inflation might move to the jobs market". He blamed the bad July data on the education sector but admitted there were "elements of uncertainty" in the international economic outlook.
Uncertainty is one way of describing it. Inflation, for example, is now running at 10.8% in Spain. Last July, twelve months ago, it was at just 2.9%. How long can ordinary Spaniards keep putting up with that? The manufacturing PMI (purchasing managers' index) number for Spain was published yesterday and came in at 48.7, its lowest level since May 2020, almost back at the start of the Covid pandemic. Any result below 50 is considered a problem.
"The sector was hit hard by the sharpest drop in new orders for over two years in July", wrote S&P Global in their note: "Panellists reported that sales had sunk due to the increasingly uncertain environment, with some firms predicting recession in the second half of the year". There's that word "uncertain" again.
"Firms are getting increasingly concerned of a continuation of the economic downturn in the coming months, and as such are taking increasingly defensive positions as highlighted by cuts in employment, inventories and purchasing.”said their economics director, Paul Smith, in the note. Defensive job cuts in manufacturing because the economy is starting to tank doesn't sound very much like a temporary summer problem with teachers.
Last week, the government reduced its GDP growth forecast for next year to 2.7%, down from 3.5%, but that number only lasted about half-an-hour until the IMF said Spanish growth in 2023 would be even lower, at 2.0%. The "uncertainty" is just beginning. Europe is in for a special ration of uncertainty. The ECB has promised to fight against "fragmentation" because bond investors already don't believe Italy, Greece and Spain are going to deal with this new eurozone crisis as well as Germany and the Netherlands.
So the question would be is the July jobs number the low point, the turning point, for unemployment in Spain? Is the government going to get lucky for another couple of months or is that it and the jobs numbers will now worsen for Sánchez month after month on top of all of the other negative economic indicators? How will that affect both the general election in 2023 and any calculus he might have in mind as to whether or not to go for an earlier vote?