Seasonally adjusted employment:

4Q 2009: -0.2% q/q, -2.0% y/y

MNI survey median: -0.3% q/q, -2.0% y/y MNI survey range: -0.4% to -0.2% q/q

3Q 2009: -0.5% q/q (unrevised) 2Q 2009: -0.5% q/q (unrevised) 1Q 2009: -0.8% q/q (revised from -0.7%)

PARIS (MNI) - Eurozone employment fell another 0.2% in 3Q, confirming the slowdown in downsizing since its peak in 4Q to the slowest rate since the contraction began in mid-2008, Eurostat said Monday. Most analysts had expected a somewhat steeper decline.

Some 347,000 jobs were lost in 4Q after -756,000 in 3Q, -750,000 and -1,132,000 in 1Q, giving an annual drop of 2.0% to 144.3 million in 4Q. From the peak in 2Q 2008, employment was down by over 3.8 million or 2.6%.

Quarterly job losses were steepest in manufacturing (-1.1%) and trade, transport and communication (-0.6%), and flattest in financial and business services (-0.1%). There was a recovery in agriculture (+0.5%) and steady gains in other services (+0.2%).

Sentiment surveys point to further job losses ahead, but at a slower pace.

The employment component of the PMI manufacturing polls has risen from an average of 44.0 in 4Q to 47.0 in February, while the services polls show a rise from 45.9 to 48.3. The composite employment index rose to 47.9 in February, the highest level since the collapse of Lehman Brothers.

Since 4Q, hiring prospects continued to recover in all main sectors except construction in January and February, according to the European Commission's survey. The near-term outlook for employment is now 4-5 points below average in manufacturing and retailing, but much lower in the services and construction.

By contrast, consumers' jobless worries for the year ahead eroded slightly in February for the first time since November, no doubt reflecting more pessimistic expectations for the overall economy.

Like most analysts, consumers probably suspect that the economic upswing will remain too sluggish this year to absorb the new labor market entries along with the massive unemployment created during the recession.

"Given how difficult and costly it can be to lay off workers in many Eurozone countries, firms will be reluctant to take on new workers until they are really confident that recovery will be sustained and will gain momentum," predict analysts at IHS Global Insight.

Moreover, government measures to protect jobs have undermined productivity and boosted labor costs, which were up 2.1% on the year in the services in 3Q and 10.6% higher in industry, according to OECD estimates.

Welcome as these policies may be to alleviate the social costs of mass unemployment, they add to the burden on dangerously overstretched public budgets and squeezed business margins. Many observers fear it is only a matter of time before much of this hoarded labor is jettisoned.

The ECB's survey of professional forecasters (SPF) in January suggested that observers have on balance become slightly less pessimistic about unemployment trends this year, no doubt reflecting improved growth prospects and the resilience of the German labor market.

The average jobless rate for this year is now seen at 10.5%, down from 10.6% in the October poll. Unemployment is seen peaking in the second half, with a jobless rate at 10.7% in November.

For 2011, the SPF gives a steady average jobless rate of 10.5%, up from 10.4% in the October survey. By November of next year, the rate is expected to ease to 10.4%. The upward revision for next year may reflect slightly lower annual GDP growth expected through 2014 (+1.8% vs +1.9% in October). The longer-term jobless rate is now seen at 8.6%, up from 8.5% in October.

Rising unemployment will continue to weigh on consumer sentiment and could reinforce the retrenchment in spending, which was down 0.6% on the year in 4Q. This will further postpone the day when the Eurozone economy returns to potential growth and job creation.

In Germany, where the labor market has held up remarkably, employment stabilized in 4Q and was only 0.4% lower on the year. National statistics showed a seasonally adjusted rise of 5,000 jobs in January. Still, the Labor Agency IAB expects employment to fall by over 225,000 this year, even with a GDP rebound of 1.75%. Given the expected contraction in the labor pool, unemployment would rise by only 122,000.

German firms "seem to have largely used up their possibility to offset the under-utilization of their employees by the use of flexible working time," the IAB explained Friday.

In France, employment dipped 0.1% in 4Q for a 1.1% drop on the year. National data showed a comparable quarterly decline, but a 1.8% annual fall. The loss of 20,400 private non-farm payrolls in 4Q was the smallest decline since the labor market began to contract two years ago.

Sector surveys by the French statistics institute Insee point to a stabilization of employment in the services ahead and fewer job losses in manufacturing, construction and wholesaling. One exception is the retail sector, where faster downsizing is anticipated. Projections by the statistics institute Insee and the government suggest that the labor market could stabilize or even recover sometime in the second half of the year.

In Italy, employment also was down 0.1% on the quarter for an annual decline of 1.8%. The research institute Isae expects employment to contract by 0.6% this year after a 1.4% drop last year. Actual job losses were limited last year by the massive use of short hours and usual delays in labor market adjustments; in terms of equivalent full-time jobs, employment dropped by 2.5%, Isae estimates.

While employment in Italy is likely to recover by an average of 0.7% next year, the jobless rate is seen stabilizing at 8.8%, up from 7.8% in 2009, Isae said last month.

In Spain, where the labor market has adjusted fastest to the slump in activity, employment fell another 0.8% in 4Q, giving a 6.0% drop over the last four quarters -- by far the steepest in the Eurozone. The jobless rate rose another 0.1 point in January to 19.5% and to 44.5% for those under 25. The OECD expects the jobless rate to peak at close to 20% this year and begin to decline later next year.