Spanish Unemployment Drops In May As Peak Tourism Season Begins

The number of Spaniards claiming unemployment fell in May much more than expected in a sign that the economy may be starting to turn a corner. The number of people registering for jobless benefits fell by 98,265 from April to 4.89 million, the Labor Ministry in Madrid said today, giving support to the government's prediction that an economic recovery will begin before the end of this year.

The figures probably got a boost from an increase in tourism employment as Spain enters its peak tourism season during the summer. Regardless, the numbers blasted away economist forecasts as the 98,265 drop in those claiming unemployment was nearly double the 50,200 expected by economists as surveyed by Reuters.

Spain has been battling a large unemployment crisis alongside its drawn-out financial crisis. The country has been battling an unemployment rate above 27 percent and the country, the eurozone's fourth largest, is home to about a third of the total number of unemployed people in the currency zone. Last week, the OECD estimated that the unemployment rate would peak at 28 percent next year after the tourism boost fades.

Spain's economy has shown some signs of life in recent months, confirming many predictions that the economic adjustment the country needed to regain competitiveness has nearly run its course. In March, the current account swung back to a surplus from a deficit in February as the country recorded its first trade surplus on record. This data shows that Spain's exports, including tourism, are becoming more competitive as prices decline and could be the seeds for a sustainable economic recovery predicated on exports.

Spain's Ibex Index rose 1.01 percent leading all major European indexes in midday trade in Madrid. Consumer cyclical stocks led gains with most strength seen in retailers. Inditex, the parent company of fashion retailer Zara, rose 1.47 percent.

Spain's 10-year bonds were unchanged in trading today at 4.47 percent. Spain's 2-year bond yield declined 5.5 basis points to 1.928 percent.

The euro was slightly stronger against the dollar in early New York trade as the single currency gained 0.08 percent against the dollar to 1.3087. The move is even more impressive considering the broad dollar strength against most other major currencies.

BY Matthew Kanterman