By Don Nico Forbes
The eurozone's unemployment rate reached a record low in April and May, underscoring continued resilience in the labor market despite elevated economic disruptions caused by conflict in the Middle East.
The jobless rate across the 21-member currency bloc was unchanged in May, following a downward revision to 6.2% for April, according to European statistics agency Eurostat. A consensus of economists polled by The Wall Street Journal had expected a higher reading of 6.3%.
The unemployment rate has now hovered close to historic lows for more than a year, last hitting 6.2% in December 2024.
"The eurozone labor market remains a bastion of stability and strength despite wild swings in energy prices," said Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics.
The number of unemployed people fell by 55,000 in May compared with April.
High energy prices continued to pile pressure on businesses across the eurozone in May, with manufacturers reporting sharp increases in input costs.
Still, the labor market has remained sturdy throughout the conflict. Despite concerns that higher costs, tumbling confidence and reduced activity might force firms into job cuts, employers have largely continued to retain workers despite weaker economic growth. This in part reflects persistent labor shortages in many sectors after years of difficulty recruiting staff.
And constraints are likely to ease from June after cooling tensions between the U.S. and Iran caused energy prices to tumble.
Continued strength in the labor market will be a key consideration for the European Central Bank, which in June became the first major central bank to raise interest rates following the outbreak of the conflict in Iran.
"These data help the ECB's argument that it made the correct decision to hike rates in June, responding to upside inflation risks amid the economy's resilience," Vistesen said.
Strong demand for workers amid relatively low unemployment raises the risk of faster wage growth as employees seek compensation for rising energy costs, a key concern for the ECB. For policymakers, a tight labor market raises the risk that higher wages could keep underlying inflation elevated even as energy prices retreat.
"When labor markets are tight, workers may be in a better position to bargain for higher wages. These dynamics are more likely to become relevant when inflation is already elevated," ECB President Christine Lagarde said in late June.
Still, recent data suggests such second-round inflation effects remain contained. According to the central bank's wage tracker, pay growth is still expected to slow this year despite the conflict in the Middle East.
Meanwhile, inflation in the eurozone fell more than expected to 2.8% in June, further reducing the likelihood of another interest rate increase later this month.
Alongside lower energy prices, services inflation also eased, suggesting the earlier energy shock hasn't meaningfully fed through into broader price pressures or wage growth.
Write to Don Nico Forbes at don.forbes@wsj.com