Israel's unemployment rate dropped to a preliminary 5 percent in October, capping a steady decline of two-and-a-half years to its lowest rates since the late 1980s, but even the government's Central Bureau of Statistics (CBS) was quick to discount the importance of the figure.
Moreover, economists said the trend of declining joblessness - the fruit of nearly eight years of almost non-stop economic growth - is probably reaching an end as the troubles of Europe spread to the global economy and to Israel, whose economy is small and heavily reliant on foreign trade.
"The economy is slowing, maybe not dramatically, but it is slowing. When we look at the composite index, when you look at export figures and certainly housing data, we see slower demand, weakening consumer confidence," Jonathan Katz, an economist who covers Israel for HSBC Holdings, told The Media Line. "My guess would be that we'll see unemployment at 5.5 percent or a little higher for all of Q4."
Israeli gross domestic product will probably grow close to 5 percent this year, but with Europe weighed down by debt woes and bringing the global economy down with it, Israel will have trouble maintaining anything close to that rate. HSBC is forecasting growth of just 2.4 percent this year and Barclays Capital a slightly more optimistic 2.8 percent.
Finance Minister Yuval Steinitz put a positive spin on the jobless statistics. "We're proud of the drop in unemployment to a historic [low] of 5 percent, which is testimony to the success of the government's anti-crisis policy," he said in a statement. "Nevertheless, in order to preserve this achievement of low unemployment in the future, too, in light of the growing crisis in Europe, we need to encourage investment and growth while maintaining fiscal discipline."
But, in fact, the government faces a dilemma as slower growth will almost certainly raise the jobless rate even as it struggles to design a more "social" economic policy after last summer's tent cities and mass protests against the high cost of living and housing. A package of recommendations by the so-called Trajtenberg committee remains trapped in political controversies and has only been enacted in part.
Last week, the Knesset Finance Committee approved an additional 780 million shekels ($206 million) to the 59.5 billion-shekel defense budget, taking funding from welfare and housing to pay for it. Meanwhile, the Ha'aretz daily reported on Monday that Prime Minister Binyamin Netanyahu has decided not to cut the army's 2012 budget, which virtually ensures that two Trajtenberg proposals - free pre-school education and longer school days - are unlikely to become part of the 2012 budget.
The Israeli jobless rate is much lower than most Western economies. Unemployment among countries belonging to the Organization of Economic Cooperation and Development (OECD) rose to 8.3 percent in October 2011 from 8.2 percent the month before, with Euro-area joblessness at 10.3 percent. The U.S. rate was 8.6 percent.
The CBS itself doesn't put much stock in its monthly unemployment report. It is based on a smaller sampling of people than its more accurate quarterly labor reports and this October the sample was even smaller due to the timing of the Jewish High Holidays this year.
Ori Greenfeld, macro-economist at Tel Aviv's Psagot Investment House, suggested that the lower unemployment rate signals that people are dropping out of the workforce. When they do, they are no longer counted among unemployed.
There is already some evidence that that is happening, although Israel won't be publishing fourth-quarter labor data until the first quarter of 2012. CBS figures show the percentage of the population in the labor force has been easing lower in recent quarters from a peak of 57.7 percent in the second half of 2010 to 57.4 percent in the third quarter of 2011, the latest for which figures are available.
The CBS reported two weeks ago that the number of job vacancies had declined almost 11 percent to 60,200 in November compared with October. Meanwhile, GDP grew 3.4 percent, similar to its growth rate in the previous quarter. However, consumer spending growth slowed to just 0.9 percent annual rate, compared with 1.3 percent in the previous quarter, while exports plunged 16.9 percent rate, compared with growth of 1.5 percent in the previous quarter.
The Bank Hapoalim consumer confidence index increased in October to a level of 50.7, marking the first time in three months that the figure has been above the 50-point level. But the Bank of Israel composite state-of-the economy index rose only 0.2 percent in November, compared with more than double that pace a year ago.
"Israel is highly dependent on the global environment and as we go into a global slowdown we'll see the impact more and more," said Katz of HSBC. "We're already seeing it on exports and we'll see unemployment approaching 6.5 percent or 7 percent by end of 2012."
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