David McNamara: Strong Irish labour market is set for a slowdown

Unemployment remains low, ticking up to 4.4% in Q2 2024 from 4.3% in Q1

The Irish labour market expanded at a robust pace in Q2, but indicators point to a slowdown ahead.

Last week’s data show employment increased by 0.7% in the quarter, and the annual growth rate accelerated to 2.7% y/y (+1.9% y/y in Q1 2024). Total employment in Ireland is now at a record high of 2.74 million, and is 372,000 or 16% above its pre-pandemic levels in Q4 2019, following several years of rapid jobs growth.

At a sectoral level, the out-turn was mixed, with only half seeing an increase in Q2 versus Q1 2024. However, most sectors were still higher on the year. 

The biggest annual increases in employment were in the Professional, Scientific, and Technical sector (+12.7% y/y), Industry (+6.6%), and Information & Communication (+6.5%). The weakest performers were Construction (-6.8% y/y) and Wholesale & Retail Trade (-7.3%), perhaps reflecting more challenging trading conditions in those sectors. 

Overall then, employment growth remains strong but the gains are more narrowly based across a couple of high-growth sectors at present.

Unemployment remains low, ticking up to 4.4% in Q2 2024 from 4.3% in Q1, with other measures of labour market ‘slack’ pointing to slightly weaker conditions. The long-term unemployment rate fell further to just 0.9% from 1.2% in Q1, but those working part-time who could not find full-time work ticked higher, as did other measures of ‘slack’. 

However, the key driver of jobs growth during the quarter remained people moving into full-time work, underpinned by ongoing strong population growth. The labour force grew strongly, while the participation rate inched higher once again. This growth was once again driven by higher female participation and inward migration.

However, we expect this exceptional growth to cool in the coming quarters. Indeed, the monthly CSO payrolls index suggests jobs growth had already slowed in Q2 2024. 

The jobs market slowdown has also been well signalled in industry surveys, such as the PMIs and Indeed.ie job postings, which suggest employer demand has waned in recent months. 

The supply of new labour is also likely to be tighter as the rise in female participation begins to plateau, and the level of inward migration continues to ease, following the surge associated with the war in Ukraine in 2022/23. This suggests annual jobs growth will likely slow to below 2% in the coming quarters.

This week’s macro highlight will be inflation data on both sides of the Atlantic, with Eurozone and US inflation data expected to show a continued downward trend, clearing the way for further near-term central bank rate cuts.

• David McNamara is Chief Economist with AIB