Spanish Unemployment Drops In Second Quarter For First Time In Two Years

Spain's economy may finally be on the up-swing after years of contraction marked by a financial crisis created from a massive housing and credit bubble. However, more good news came for the Spanish economy Thursday as the government announced that the unemployment rate declined for the first time in two years in the second quarter as the economy may be turning a corner.

Unemployment Drops

Spain announced that the unemployment rate declined in the second quarter from 27.16 percent previously to 26.26 percent. The drop was unexpected as economists surveyed by Reuters were expecting a slight gain in the rate to 27.2 percent.

The drop in the unemployment rate follows four months of improvement in the employment market. Earlier this month, . In June, those claiming benefits declined 127.25 thousand, much better than the expected decline of 50.2 thousand after dropping 46.1 thousand in May, which was also much better than forecast.

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Second Quarter Flat, Growth Ahead

Earlier this week, Spanish Prime Minister Mariano Rajoy spoke and said that he expects GDP growth in the second quarter to have been near flat and that he sees growth ahead. Just one year ago, the thought of growth in Spain, which has seen its banks receive over 100 billion euros in direct and aid and more indirectly in just the past year, seemed ludicrous. However, recent data may finally be proving otherwise.

PMI data has also pointed to a resurgence in the Spanish economy. In June, Spain's manufacturing PMI rose to 50.0, the highest reading in 25 months. Further, the PMI report revealed that export strength led to new orders rising to the highest level since April of 2011.

The services sector has also been on the upswing in Spain, especially as the tourism season begins to kick into high gear during the summer. Spain's services PMI rose to a two-year high of 47.8 in June led by a slower decline in new business. Further, business confidence was at its strongest since July of 2011.

Markets React

Despite most global markets trading lower, Spanish stocks gained following the strong employment report. Spain's benchmark Ibex 35 Index gained 0.32 percent led by banks and technology stocks. Stocks were also boosted by some of Spain's banks reporting better than expected earnings.

10-year bond yields for Spain rose 1 basis point Thursday to 4.69 percent but were down from the recent high of 5.12 percent. Spain's 2-year bond yield was also higher.