Youth Job Market Participation Hits Historic Low in Israel

A new report from Psagot indicates a cooling labor market in Israel, marked by a historically low participation rate among young people under 24. This trend coincides with rising inflationary pressures in the United States and a significant increase in government bond yields.

In the U.S., macroeconomic data points to continued economic expansion and strengthening inflation, leading to a sharp rise in Treasury yields. The yield curve has flattened, with the spread between two-year and 10-year notes at just 25 basis points, signaling potential further increases in long-term yields. The Purchasing Managers' Index (PMI) for manufacturing and services reached 58.4 in September, the fastest expansion in over five years, suggesting Q3 GDP growth around 4-5%. Input costs are at their highest since October 2022, driven by fuel and transportation, while supply chain bottlenecks are the most severe in two decades, excluding the pandemic period. Despite these challenges, companies report improved pricing power and the fastest hiring rate in four years.

U.S. bond markets have seen unusual activity. The 10-year Treasury yield surpassed 5% to 5.17%, a level not seen since June 2007, while the 30-year yield hit 5.47%, a high since June 2004. The two-year yield rose to 4.87%, its highest since May 2024. Treasury buyback auctions have also raised concerns, with a September auction for 10-20 year bonds receiving only $5.2 billion in bids, 86% of the maximum, leading to a three-year yield high. Another auction for 20-30 year bonds saw the Treasury refuse low prices, purchasing only $4.1 billion, 68% of the ceiling.

Internationally, a meeting between U.S. President Donald Trump and Chinese President Xi Jinping concluded without major agreements, with both sides issuing separate summaries. U.S. Treasury Secretary Scott Basset revealed a two-month extension to trade negotiations until January 10, 2027, though this was not officially announced. Agreed-upon measures include a mutual reduction of tariffs on $30 billion of trade per side, primarily on non-tech goods. Liquefied natural gas remains excluded from tariff reductions, and China committed to purchasing at least 10 million tons of U.S. coal in 2027-2028, while soybean, agricultural, and aircraft purchases were not included.

In Israel, the labor market shows signs of cooling, though Psagot believes it's not significant enough for the Bank of Israel to lower interest rates further. The overall participation rate dropped by 0.4 percentage points to 61.8% in August. For those aged 15-24, the rate fell to 33.0%, a historic low. The participation rate for the prime working-age group (25-64) has remained stable around 81% for about 18 months. The official unemployment rate decreased to 2.8%, partly due to the lower participation rate, while the broad unemployment rate reached a historic low of 3.9%. The number of people temporarily absent from work surged to 552,800, mainly due to summer vacation, though those absent for economic reasons fell to 12,800. Demand for workers also decreased, with 3,180 fewer job openings in August. The construction sector saw the sharpest decline in openings, while the high-tech sector continued to show demand, with openings rising to 18,800, representing 13.2% of all vacancies.