Israeli Unemployment Drops to 3.1% in August Amidst Economic and financial Challenges

Israel's unemployment rate plummeted to 3.1% in August, down from 3.4% the previous month, as reported by the Central Bureau of Statistics. This unexpected decline comes at a time when the nation faces a slew of economic challenges, including a weakening shekel, high-interest rates, a slowing economy, and a high-tech crisis, all while grappling with inflation exceeding government targets.

The Bank of Israel is navigating the complexity of a labor market that appears to be at full employment, characterized by low unemployment rates and high employment and participation rates. Real wages have also been on the rise in recent months. However, signs of moderation in the labor market are emerging, particularly with a downward trend in job vacancies, notably in the high-tech sector.

This drop in unemployment seemingly affords the Bank of Israel some flexibility in its monetary policy. It could potentially consider raising interest rates, especially given the concerns regarding the shekel's depreciation, which could necessitate further rate hikes. Recently, inflation data revealed a surprising 4.1% annual rate, exceeding forecasts. Yet, market sentiment suggests that these factors alone may not be sufficient to prompt another interest rate hike, and much will depend on the trajectory of the shekel's devaluation. Moreover, the impact of further rate increases on the foreign exchange market remains uncertain at these levels.

It's worth noting that while the unemployment rate showed a slight uptick in the past month, reaching 3.5%, it is still relatively low, with 155,900 individuals unemployed compared to 155,500 in the previous month. Seasonally adjusted data even indicates a decrease in unemployment from 3.4% in July to 3.1% in August.

According to CBS data, in August, there were 205,300 unemployed in Israel using a broad definition of unemployment, which includes those who have given up looking for work, representing 4.5% of the population. This figure saw a decrease from 206,500 in July, also constituting 4.5% unemployment.

However, it's essential to acknowledge that Israel's unemployment figures may not capture the full extent of joblessness, as many individuals, especially some ultra-Orthodox men and Arab women, are not actively seeking employment, thus remaining excluded from the official statistics.

In July 2023, there were 7,071,800 Israelis aged 15 and over eligible to work according to international standards. Of these, 4,517,300 were in the workforce, while 2,554,400, comprising both men and women, were not included. Currently, 4,361,500 Israelis are employed.

This decrease in unemployment figures contrasts sharply with other economic indicators, including a weakening shekel, high interest rates, a slowing economy leading to reduced tax revenues and an expanding budget deficit, a high-tech crisis, and persistently high inflation exceeding government targets.

Economic experts highlight that unemployment tends to be a lagging indicator in times of economic downturns, as employers are often reluctant to lay off skilled workers, and employees, fearing a worsening economic situation, are hesitant to resign even if their jobs do not fully utilize their skills.

The recent increase in the number of job seekers in August was primarily seen among women, while men experienced a decrease. This phenomenon is attributed to summer layoffs, which traditionally affect women more. However, compared to August 2022, the proportion of women in the workforce is lower than last year's figure of 57.4%, standing at 56.1% in August 2023.

An in-depth analysis of job seekers based on occupation reveals that professions related to teaching and education were significantly impacted by summer layoffs. Among primary education teachers and pre-primary educators, there was a staggering 136.7% increase in the number of job seekers. Childcare workers and teacher assistants also saw an 82.5% increase, while other teaching-related professions experienced a 67.2% rise in job seekers.

As Israel grapples with a complex economic landscape, the surprising drop in unemployment rates offers a glimmer of hope amid ongoing challenges. The trajectory of these economic indicators will be closely monitored in the coming months, with particular attention to the potential implications for monetary policy.