Whilst unemployment in Spain is now over 25% what her employment rate signals is even more worrying

I discussed yesterday the implications of the 1% increase in Gross Domestic Product in the UK in the latest quarter of 2012. Today will see the numbers for the same quarter for the United States and for the first time in a while it is very likely that the UK will have shown a higher growth rate which in US annualised style was 4% and more if you compound it. Unfortunately for us in the UK the favourable comparison stops there as if we actually look over the past year we have not grown at all whereas the United States has.

This reminds me that in these current times even flat-lining is better than some have achieved. If we look at the Kingdom of Spain we see that her economy continues to shrink as even her central bank has forecast that her economy shrank by 0.4% in the third quarter of 2012. This means that her economy will have shrunk by 1.7% over the past year if it turns out to be true.  Thus the last four quarters will have gone -0.5%,-0.3%,-0.4% and -0.4%. We have been reminded of the human cost of this only this morning.

Unemployment in Spain

This is a rather chilling report as with the help of google translate we see the following.

The unemployment rate rose 38/100 from the second quarter and stood at 25.02%.

So we see that Spain has breached the 25% barrier and if we look further we see that some 5,778,100 are now unemployed there. This has risen by 85,000 or 1.49% over the last quarter and 799,700 or 16.06% over the past year. The way this is presented may be accurate but offers little or no sympathy for the human cost.

As for the annual evolution, the rising unemployment rate (16.06%) was moderate  compared to the previous quarter.

It feels as though it was almost yesterday that it was considered a big deal when Spanish unemployment rose above the 5 million mark and now,sadly, we find it pushing ever higher with no respite in sight.

If we look for a national breakdown then the unemployment rate of Spaniards at 23.32% is much lower than that for foreign workers at 34.84%

Also the curse of long-term unemployment is spreading too.

The unemployed who have lost their jobs over one year have increased by 458,800.

What about employment?

Regular readers will be aware that I feel that the level and the rate of change of employment has become an important signal in the credit crunch era. By this I do not mean that it was ever unimportant, what I mean is that it used to be a lagging indicator of events but now has become much more timely and may even have some predictive power for future events and trends. So let us take a look in that vein.

The number of employed people fell by 96,900 in the third quarter of 2012 and  is now 17,320,300. The quarterly rate of employment fell by 0.56%.

Whilst this is better than the 146,800 lost in the same quarter last year it means that in the last year employment in Spain has fallen by some 835,900 or 4.6%. So at this point it is no surprise that her economy is shrinking and frankly I wonder if the recorded rate of shrinkage might accelerate as it is not clear to me that the official GDP numbers have “caught up” with this decline yet.

If we look at the detail we see that troubled times show the by now familiar pattern of an increase in self-employment. This rose by 65,100 in the last quarter and by 108,400 over the past year. So we have seen a sharp move into self-employment recently. If the UK evidence is any guide there will be some “hidden unemployment” in this move.

The number of employees has fallen by 946,200 in the last 12 months, while the  self-employed have increased by 108,400.

However the pattern vis-a-vis full and part-time work is unusual for these times.

Full-time employment increased by 14,800 people this quarter, while the number of part-time employed 111,800 low. The percentage of people who works part-time decreases more than half a point to 14.37%.

Actually this is quite a reversal as over the past year full-time employment has fallen by 925,900 or 5.9% and part-time employment has risen by 90,000 or 3.8%.

Another way of looking at a situation is to compare the level of employed ( 17,320,200) with the combined total of the unemployed (5,778,100) and the inactive (15,321,900) or 21,100,000. Not only are they behind but they are slipping further behind. This is becoming something of a regular feature in the Euro area countries which are in trouble and it is quite different to the situation in the UK for example.

Comment

If we look at the employment data above we see that it continues to weaken and over the past year it has weakened substantially. Maybe there is a slowing of the rate of decline but we appear to be nowhere near a genuine turning point. If we now feed in the latest survey data from Wednesday for the Euro area we see this.

Euro zone firms continued to cut employment, adjusting capacity down in response to lower levels of demand for goods and services. The overall rate of job losses eased slightly, but remained close to the 32-month record seen in September.

Whilst that report did not specifically mention Spain it did mention that the peripheral nations were still putting in the weakest performance. So it seems very likely that employment will fall again in the last quarter of 2012.

This problem is reinforced by Spain’s rise in unemployment which will further reduce domestic demand going forwards. So if we combine the two factors we see that it looks as though grim times remain ahead.

The one hope is Spain’s black economy which as we see tax rates such as Value Added Tax rise is likely to be increasing. The problem is that our measures of the size of the official economy have quite a few weaknesses but even they are far better than our knowledge of exactly what is happening in the black or unofficial economy.

One feature of all of this is that Spain’s working age population is now shrinking. It is now 38.42 million and has fallen by 47,100 in the last quarter.

Isn’t more austerity yet to come?

Added to the current downward trajectory of Spain’s economy is the fact that she is tightening the austerity noose around its neck. It was only last month that furhter measures for cuts and higher taxes of around 1.3% of economic output were announced. So this will add to her problems and 2013 looks as grim as 2012.

Santander

In the third quarter Santander has declared profits which at 100 million Euros are quite a drop on last year’s 1.8 billion Euros. The major cause was the fact that so far this year she has provisioned for 5 billion Euros of bad property loans. This gives us plenty to muse,for example how keen will she be to lend? We already have the example of the UK where her net mortgage lending is now negative which is a far cry from the heady days of 2010 when she took half the new mortgage market and promised to expand.

I questioned at the time the way that Santander was allowed to buy so much of the UK banking sector. Please do not misunderstand me Spain as a country is one of our friends and there was nothing wrong with one of her banks buying one of ours. It is the risk factor in the size of the purchases which bothered me back then and frankly it bothers me a lot more now. It may not be a coincidence that she has raised her standard variable mortgage rate in the UK this year when interest-rates were supposed to be falling. Will we see more?

Inflation in the UK

This afternoon I will be attending the consultation on “improving” the Retail Price Index measure of inflation. You can imagine it was therefore with grim humour that I spotted this on twitter.

Another UK energy price rise hike: EDF putting up bills by average of 10.8% from December (@graemewearden)

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18 thoughts on “Whilst unemployment in Spain is now over 25% what her employment rate signals is even more worrying

  1. Another excellent article as always. 25% unemployment seems completely unaffordable. How can 75% afford to keep 25%? I don’t know what the welfare provision in Spain is but this seems impossible to maintain for long.

    Are there examples of other countries or situtations where unemployment has been so high (or higher) and what the long term consequences were?

    • Ofcourse that 25% is just the tip of the iceberg. “They” being just the “unemployed”. To this add the benefits paid to the under-employed and the unemployable and then you really begin to see the impossible predicament Rajoy’s government finds itself in.

      Another Government prepared to sacrifice its people on the altar of austerity… but in return for what? What is it that scares successive politicians across Europe into such an abandoning of their own countrymen?

      We just see the same train wreck being replayed across Euroland. The only puzzle is why the people still put up with it all and haven’t got out their pitchforks (yet)?

    • Hi Matt and thank you

      The numbers are an issue and as I put in the post I think that the level of employment compared to the potential workforce is an issue. If we look at the demographics this was a building issue of the drip drip nature anyway and now it is happening on top of what is a depression type scenario.

      As to your question I saw quite a few mentions of the US and the Great Depression being quoted as a similar number. We will never know how that would have evolved without World War Two…

  2. When we look at the pre 2008 Spanish economy, we should note the huge amount of housing inventory being built up. Add to this the debt financed white elephant public projects -> and you see a very overinflated GDP number.

    When you remove the construction, the suppliers lose money as do the factories & quarries that fabricate the materials. Architects, engineers building trades people, drivers, estate agents and notaries all have less work. Hence there is probably a multiplier of 2.0 or higher for the construction money removed from the GDP. Small wonder that the Spanish GDP has shrunk.

    Going forward, the oversupply of residential property inventory will act as a drag on new build for a long time. It is hard to see how the Spanish economy can quickly recover to former levels.

    • It is indeed hard. Personally, I can’t see how Spain can return to the heady days of 2007 when construction was booming, using millions of immigrant workers and masses of cheap foreign and local money. There is simply not the demand for the product, not to mention the 1m or so unsold houses in stock. My guess is that the next decade will be very hard for Spain. A few more months of dire figures and I also think there could be more visible unrest in the country, especially in the south where the unemployment rate is around 35%. Rajoy has a very difficult task indeed.

    • Hi Expat

      I agree that the housing sector is likely to act as a dragging anchor to Spain’s economy for the forseeable future. So here is a question for all reading this what are the areas she can expand into? Any thoughts?

      The pre-2008 expansion is also a challenge to the concept of GDP statistics..

  3. The Spanish system does not encourage entrepreneurs. It relys on big business for employment and this is basically where their unemployment figures come from. The black economy is massive and is inflated by the need for legal self employed workers to pay the autonomo. This is like our national insurance but it is not income linked. The day you start your business you are expected to pay 260 euros a month whatever your income. Even if you earn nothing. Excessive taxation bureaucracy (3 monthly returns) and forms full of gobbledygook requiring a gestor (tame accountant) for interpretation bulk up the monthly charges before you even start. For young people, unlikely to become sick and probably earning very little from their fledgling enterprise this millstone just encourages them to disappear into the black economy.
    Things in Spain are not quite as bad as the official figures dictate. They are distorted by bureaucratic incompetence.

    • Absolutely right about the self employed. I would add that there is no equivalent to our £70k VAT registration limit. You collect VAT on the first Euro of sales in Spain. But though not as bad as they seem, things are still very bad. The EU needs to make a start on sorting out the black economies of some of its larger countries. Proper transparency would be a good place to start. Apart from anything else, they are better off than the statistics show and that’s unfair on the rest.

      Also, the ambition of many young Spaniards is to go into state employment. That’s deeply depressing but understandable given the precarious nature of non-state employment and the 30% salary advantage of state employees. That needs fixing if Spain is to recover.

    • Hi Andy and welcome to my part of the blogosphere

      We have regularly discussed the size of Spain’s unofficial or black economy on here but the issue always comes down to quantifying it. Would you be able to give some estimates from your experience?

      • Hi Shaun
        I lived in Spain for five years. The job prospects for young Spaniards are awful. There are a number of small family businesses and the wife and children of any self employed person are covered under the Spanish health system through their Autonomo contributions. If a young Spaniard wants to start on their own they are lumbered with precisely the same costs whatever they manage to earn. As outlined in my original comment, there are additional costs brought about by the high level of Spanish bureaucracy.
        I also agree with Carys that the level of Government employees is unsustainable. Many of these non jobs just augment a bureaucratic system of justifying their position by making it even harder to launch a successful company.
        This is purely a guesstimate but I would suggest that the black economy in Spain represents between 5% and 8% of the total. On top of that one must consider the inevitable corruption which is born from excessive bureaucracy.Back handers are still very much part of the Spanish system.
        Spain is a beautiful country stuffed to the roof with history and culture. It’s people are warm and friendly. They are,
        unfortunately, let down by their politicians. Now doesn’t that sound familiar !

  4. Hello Shaun,

    the long dark night ahead for spain – but will she ever leave the Euro ?

    Never I think – too many vested interests

    but if she export to the USA – after all they’re doing well now

    expect oil prices to rally if this is not an illusion !

    So can Spain learn anything from the USA – like master of your own currency ? or stay tied to the German Law

    on that what about Germany , not too good there either- perhaps interest rate cuts will be required for them too

    that would help a little but I think the hangover is like Greece’s one – gonna be a long time recovering

    Forbin

    • Hi Forbin

      I am not so sure about the never leave the Euro as hard times lead to many unpleasant possible roads which are outside my arena aka politics

      But for now the economics looks grim as far ahead as we can see.

  5. I am in Portugal at the moment and can see evidence of the poor economy all around me. Oddly enough, the locals also complain of inflation which, if supermarket prices are anything to go by, is on the increase. Talking to estate agents makes it very clear that little is happening and they have no idea what the market drop is from the peak as almost no one is buying. How they stay in business, I do not know. The really interesting thing is that the locals are envious of the UK’s performance and see it as holding (maybe not growing too much ) but not ‘bumping along the bottom’ as it is often described in the UK press! Your comments are therefore very relevant (as always). I’ll let you know of anything else of relevance I come across although it is likely to be more subjective rather than hard numbers. I’ll leave that to you!!

  6. May the best man win. Fair. Yes.

    Ford will cease making vehicles in the UK after 100 years. They will relocate to St. Petersburgh and Spain.

    Spain, following reform, will beat us for “inward investment”, that thing that Maggie went on and on about.

    Post Maggie all we could muster was “never mind we will help you with your CV” as we exported jobs East.

    Some eight years ago Spain was sucking in guest workers for contruction despite 25% unemployment and 45% youth unemployment . A quarter of workers on site were guest.

    What were they thinking about?

    We were as daft. GB was boasting about employment whilst Mr. Mandleson was telling him to shut up. Our greatest deployment of guest workers were in areas with the highest numbers of ICBs

    We were taking all their unemployed doctors and 30,000 nurses pa from the East.

  7. Shaun,

    I watched the interview with the EDF spokesman and I was impressed. The BBC presenter asked all the questions that a man in the street might ask which is what we ask them to do.

    But the biggie never came out.

    John Major introduced 43 stealth taxes. GB introduced many more but even the media couldn’t identify them. That is stealth.

    When the “Social Fund” was introduced it was £300m pa but quickly grew to £900m pa. The EDF spokesman identified that the 10.8% increase was driven by a 4% increase in wholesale energy prices but a 50% increase in state obligations.

    A junior minister in the energy department stated that the rise was regretable but didn’t own up to being the main driver

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