Europe's Jobs Market Continues to Soften

Europe's Labour Market Softens, Impacting ECB Decisions

FRANKFURT (Reuters) - Europe's labour market softened in the third quarter, data releases showed on Monday, pointing to a further decline in inflation pressures that could justify more interest rate cuts.

The rise in euro zone labour costs slowed to 4.6% in the third quarter from 5.2% three months earlier while the jobs vacancy rate slipped to 2.5% from 2.6%, extending a decline that has lasted for most of the past two years, data from Eurostat showed.

An especially tight labour market is the biggest reason the European Central Bank has been cutting rates only cautiously, worried that quickly rising incomes will put upward pressure on domestic service sector costs.

But the economy has been cooling and workers are moderating wage demands, keen to preserve their jobs even if the slowdown morphs into a downturn, supporting ECB President Christine Lagarde's case for more policy easing.

While firms are still keeping employment high, essentially hoarding labour in the hope of having ample labour for the eventual upturn, they have reduced new hirings sharply.

Among the euro zone's biggest countries, Germany recorded the biggest drop in labour cost inflation with the figure dropping to 4.2% in the third quarter from 6.0% three months earlier.

Key wage deals struck by Germany's biggest labour unions foreshadow an even bigger drop in the months ahead as the bloc's largest economy could shrink for the second year in a row in 2024 on poor export demand and continued high energy costs.

Incomes adjusted for inflation have now largely recovered to their levels before the recent spike in price growth but workers have not received much extra, with firms arguing that productivity growth is so weak, there is little to justify more real income gains.

The job vacancy rate or proportion of total posts that are vacant, fell to below 2% in manufacturing and eased or stagnated in almost every job category.

(Reporting by Balazs Koranyi; Editing by Alison Williams)