June Jobs Report: Not Encouraging

Turkey’s unemployment rate rose to 9.6% of the labor force in June from 9.3% a month earlier as the non-agricultural employment rate stood at 11.7%. That said seasonally adjusted data suggested a rise in the number of people without a job increasing the unemployment rate by 20 basis points to 10.4% as well as workforce participation rate was 51.4%.

Previously we pointed out some highlights from the jobs report in March to ponder on with addressing the biggest decline in the service industry jobs. Service job gains then have bounced back with 176k new jobs created in the following three months. Service industry jobs are important data series to watch considering the fact that they account for roughly 65% of total non-agricultural workers.

Turkey - Share of Employment by Industry

With broad strokes job numbers interestingly suggest that the evolution of Turkish business is into a construction economy. Construction industry jobs represented 7.3% total non-agricultural job back in January 2005 as the manufacturing job accounted for 28.7%. With the shift towards construction, total share of manufacturing dropped to 25.5% in June 2015 –which was even below the figure posted during late-2008 recession period- and construction employed the 9% of total non-agricultural workforce. Stated in other words manufacturing, construction and services has added 1,350K, 822K, and 4,893K jobs, respectively in ten and a half year time. Still, among all these industries newly added jobs in manufacturing has the highest correlation with the economic growth.

Unemployment rate and price stability has become two main parts of the US Federal Reserve’s monetary policy decision-making process as the central bank has set non-specific targets for each economic indicators. This has made first Friday of the each months the most influential time frame in the financial markets worldwide when the non-farm payroll numbers regularly announced which is meant to represent the number of jobs added or lost in the economy over the last month, not including jobs relating to the farming industry. During non-recessional times this number is expected to be around 250K. This number also helps determine the current state of the economy and predict future levels of economic activity.

Turkey - Non-farm payrolls vs Economic Growth

So what could the perfect number be in Turkey’s case that would tell how the economy is going? Analyzing the labor market data between January 2005 and May 2015 we find that a three monthly average of 65K would be an explicative threshold for the economic outlook. More specifically Turkish economy has averagely posted a real GDP growth above 6% (below 2.5%) when it has added higher (lower) than 185K new jobs each quarter.

To sum up with 2H15 GDP figures already announced June’s jobs report is likely to be overlooked by market participants but especially the sharp decline in manufacturing jobs needs to grab attention as they have a fundamental role to play in economic growth in the upcoming period. Industrial trends in the labor market will gain importance once the lira depreciation starts to hit companies.