Spanish Unemployment Drops Further In June After Strong May Figure

The number of people claiming unemployment benefits in Spain fell for the fourth month in a row in June as the country, fighting an unemployment crisis that has seen unemployment rise above 25 percent, has seen some relative improvement in the economy over the past few months.

For June, the number of Spaniards claiming unemployment benefits declined 127.25 thousand, much better than the expected decline of 50.2 thousand. The large drop follows May's strong drop of 46.1 thousand, which compared to an expected rise of 17.1 thousand, and marks the seventh consecutive month that the employment situation has been better than expected in Spain.

Rising Unemployment

As of the end of April, Spain's unemployment rate had fallen from March to 26.8 percent. However, the rate is up massively from the onset of the global financial crisis. In February of 2008, before the global financial crisis, the European debt crisis, and later Spain's unemployment crisis, the rate was a mere 9.2 percent.

However, the unemployment rate may have improved in recent months. Engracia Hidalgo, the Secretary of State for Unemployment in Spain, said that "in the first half of 2013, the cumulative drop in unemployment of 85,043 people is the best start to the year since 2006, the year in which our economy was growing at about 4%, compared to the 2% drop in the first quarter of 2013."

Related: Eurozone Unemployment Continues to Grow.

"We are determined to lay the foundations for Spain to recover the path of economic growth and the creation of stable and quality employment," he concluded. "This is the main objective of the Government's reform agenda."

Tourism Boost

Services employment gained strongly in June, following a boost in May, as the tourism season swings into full gear. The services sector saw a drop of 2.96 percent of the total number of unemployed claiming benefits as companies hire more people to handle the influx of tourists. Only agriculture of all of the major industries saw a rise in unemployment in June.

The good news follows a string of better than expected reports for Spain's unemployment woes, although unemployment still remains dreadfully high and the country faces a long slog to undo the damage of years of jobs losses. However, the unemployment change figure has now been better than expected for seven consecutive months in a sign that the economy may be bottoming.

Signs of Life?

Yesterday, Spain's Manufacturing PMI was reported as better than expected for June. The index of manufacturing activity rose to a 26-month high of 50.0 in June vs. 48.1 in May, showing neither expansion nor contraction in the month.

Also, the Spanish government released its budget balance for the month of June overnight, showing that the deficit widened less than expected in the month. The budget deficit rose to 8.3 billion euros in June from 7.9 billion in May, less than the expected gain to 10 billion. Year-to-date, Spain has run a budget deficit of 27.6 billion euros, or about 2.65 percent of Spain's 2012 GDP. Based on the IMF forecast of a GDP contraction of 1.6 percent in 2013, the deficit amounts to 2.7 percent of GDP for the first half of the year.

Shares Slide

Spanish shares slumped lower in Tuesday trade, however losses were much more muted than other regional indices. The Spanish Ibex Index fell only 0.2 percent while, for comparison, the Italian FTSE MIB Index declined 0.85 percent. Gainers were led by banks including Banco de Sabadell +11.94 percent, Banco Popular +6.07 percent, and CaixaBank +5.45 percent while media giant MediaSet rose 1.93 percent.

Benchmark 10-year bond yields were unchanged at 4.6 percent in Tuesday trade but are up from the early May lows near 4 percent. However, 2-year bond yields declined sharply Tuesday to 2.081 percent from 2.151 percent Monday. Yields have erased about half of the gains following the March lows of 1.456 percent. 2-year yields are more sensitive to the recent economic data as they are a better measure of the nation's liquidity; a lower deficit and lower claims mean that in the short-term, the government needs less external financing. Longer-dated bonds are less sensitive simply due to the sheer size of Spain's debt.