The latest unemployment figures from the Hungarian Central Statistical Office (HCSO) reveal that the labor market has continued its trend of gradual improvement since the beginning of the year. The model estimate indicates a drop in the monthly unemployment rate to 4.2% in June 2024. Additionally, the official three-month moving average, based on survey data, improved by 0.1 percentage points to 4.3% for the period of April to June. This data aligns with expectations. Both statistics show a decrease in the number of unemployed individuals, with the figure now approximately between 210,000 and 215,000.

Examining the detailed data, we observe a significant increase in the number of economically active individuals (i.e., labor market participants) in June, alongside a reduction in the inactive population. The unemployment figure declined only slightly (by fewer than 2,000 people). This shift suggests a direct transition from inactivity to employment for those reentering the workforce.

The primary reason for this change appears to be the seasonal rise in labor demand, particularly in agriculture. Seasonal workers are returning to their jobs, and this trend is expected to continue in the coming months, reflecting similar outcomes in the summer data. Consequently, employment levels have reached new highs, according to the monthly statistics, and both employment and participation rates have also risen. While the labor market had been characterized by easing tightness over the past year, this trend now seems to be shifting.

Given the latest labor market data, it becomes clearer why private sector wages are still rising sharply (13.5% year-on-year in May) despite earlier forecasts predicting a 5-10% wage increase for the year. The labor market has recovered more quickly than anticipated, and the forthcoming influx of new production capacity through foreign direct investment (FDI) is encouraging companies to offer higher salaries to retain their workforce. To manage rising labor costs, firms have accumulated significant liquidity amid economic uncertainty and are now channeling these resources into labor rather than capital investments. The key question remains how long this trend can persist before companies face internal pressure to increase prices for their goods and services. It is likely that as domestic demand growth accelerates (by the first quarter of 2025 at the latest), businesses will respond with higher prices, potentially even in anticipation of future demand increases.

In the coming months, two main forces will influence the labor market. Seasonal employment might continue to rise through the summer, potentially leading to further gradual improvements in key labor market indicators. Additionally, if the recovery in the construction sector is sustained, it could support this trend. However, this is counterbalanced by weak performance in industry, where there is growing evidence of rationalizing working hours and staffing levels due to a decline in orders, as reflected in institutional labor statistics.

Overall, these factors suggest a slight improvement in the labor market in the coming months, provided that positive domestic demand trends continue. By the end of 2024, after some mid-year fluctuations, the unemployment rate might remain close to its current level of 4.2%.