Jobless Rate Tumbles; Central Bank Holds Lending Rate

Economists are surprised at the sudden drop amid slowing economic growth.

Unemployed Israelis
Emil Salman

Israel’s unemployment rate took a big and unexpected dip in October, falling to its lowest level in close to a year, the government said Monday as the Bank of Israel held its base lending rate unchanged, citing an improving economy.

The Central Bureau of Statistics reported that the jobless rate fell to 5.7% last month, down from 6.3% in September and the lowest level since November 2013. The rate had been hovering above 6% since April amid signs of slower economic growth.

Meanwhile, the Bank of Israel said it was keeping its base interest rate unchanged for the third month in a row. In releasing its rate for December, the bank said a deflation crisis appeared less likely and noted the depreciation of the shekel against the dollar

“Indicators which became available after Operation Protective Edge, relating to goods exports, industrial production, trade and services revenues, and indirect tax revenues point to a recovery in activity, to the moderate growth level of just before the conflict,” the central bank said.

While Monday's decision came as no surprise — all 10 economists polled by Reuters had forecast no change in rates – the unemployment figure was unexpected in light of the drop in gross domestic product in the third quarter and forecasts for slower growth.

“It could be a fault in the measurement. But if it isn’t a mistake, the decline in joblessness would appear to be temporary,” said Prof. Eran Yashiv of Tel Aviv University. “You can’t learn anything from one month of figures. In any event, it’s no cause for celebration.”

Dafna Nitzan-Aviram, chief economist at the Manufacturers Association, agreed that it was premature to see a turnaround in unemployment, much less the economy. “It’s enough to sow confusion among economists,” she said.

While she noted that the weaker shekel might encourage exporters to take on new employees, the tourism industry and hotels were still suffering the fallout of the Gaza war over the summer and continued uncertainty about the security situation.

Still, the unemployment figures were buttressed by other good news on the labor front. The percentage of people 15 and over in the workforce – either working or actively seeking a job – rose to 60.3% in October from 60.1% in September, even as the number of jobless fell, the statistics bureau said.

The number of people in full-time jobs of 35 hours or more a week rose 1.6% from September, a net addition of 45,000 new jobs, the bureau said.

Israeli economic growth began slowing earlier this year and then went into reverse during the third quarter, dropping at a 0.3% annual rate during the 50-day Operation Protective Edge against Hamas. Since then economist have been waiting to see whether the fighting marked a temporary setback for the economy or whether it would simply exacerbate the slowdown already in place.

On Sunday, the statistics bureau said industrial production rose at a 6.7% annual rate in the third quarter while the treasury two weeks ago reported that government revenues, a barometer of economic activity, jumped 13.6% in October from the same month a year ago.

“In the event that the unemployment rate doesn’t move higher in the next two months, it will significantly increase the chance that fourth-quarter economic growth will show an upside surprise,” said Ofer Klein, chief economist at Harel Insurance & Finance.