The labor market is strong this year, and we have seen a global decrease in unemployment combined with increasing job creation.
While this may be a great story for workers, the latest strong labour data is worrying investors that interest rates might stay higher for longer and will support the dollar leading to more expensive energy and commodities with direct impact on inflation, writes eToro analyst for Romania, Bogdan Maioreanu.
In the United States, job growth accelerated in January, as a resilient economy and strong worker productivity encouraged companies to hire and retain more employees. The number of new jobs increased by 353,000 jobs last month, much higher than the expected number of 180,000
This is all good news for workers and the US economy, showing that the recession many economists feared is still a long way off. But for investors it is worrying news that will most likely delay the Federal Reserve’s decision to cut restrictive interest rates. This was also confirmed by the Fed Char Jerome Powell during an interview that specifically mentioned that Americans may have to wait until the next meeting after March for the central bank to cut interest rates, as officials await more economic data confirming that inflation is heading towards the Fed’s 2% target. And with the latest US Services PMI indicator coming better than expected, investors are now uncertain that May is the month to bring the long expected interest cuts.
Strong labor market is not a fluke and is a global trend. On account of stronger than anticipated economic growth worldwide in 2023, total labor force participation rates moved above their long term linear trend. increasing in several regions, notably in high-income countries (by 0.3 %) and lower-middle-income countries (by 1.5 %), shows the recent report of the International Labor Organization (ILO). Unemployment rates fell globally by 0.2% in 2023 to 5.1%, with declines across most country groups except low-income countries.
We are seeing the same trend in Romania too, where unemployment fell during 2023 from 5.6% to 5.4%. Though it is still very high, the unemployment rate of the young workers (15-24 years old) fell from 22.2% to 21.1%. According to the ILO report, youth unemployment in Romania is the fourth largest in the EU, following Spain, Sweden and Greece, while the lowest is in Germany followed by the Netherlands and Latvia.
The economic slowdown is expected to finally catch up with job creation later in 2024. Some of 2023’s labor market resilience may have resulted from the fact that employment is typically a lagging indicator, so weaknesses in job creation are more likely to unfold some time after economic growth slows. Thus, globally, employment growth is expected to remain positive in 2024, but at rates of only 0.8 % and 1.1% in 2025 (less than half the employment growth of 2023). As labor force participation rates decline, the global unemployment rate is expected to increase from 5.1 per cent in 2023 to 5.2 per cent in 2024 and to remain unchanged in 2025, concludes the ILO report.
A strong labor market is also apparent in the confidence that investors are having in their own job stability, according to the latest eToro Retail Investor Beat survey. While the average of the 10.000 polled investors sits at 73%, Romanian investors are a bit more confident ( 74% ). The highest degree of confidence comes from the Netherlands (86%) followed by Poland and Norway (82%). Italy is the country with the least degree of confidence in the stability of the job (51%). The US investors are not far from us, their job confidence being a bit higher than the survey average (76%). There is no wonder that investors continue to see inflation as the main external risk to their portfolio.
Strong labor markets mean interest rates staying high for longer
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