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Jobless rate falls for first time since 2007

But a "hard road ahead" awaits before recovery kicks in, PM says

Unemployment in Spain fell slightly in the third quarter, for the first time since the country suffered its worst recession in some 60 years. But any hopes of a marked retreat from levels that remain the highest in Europe anytime soon remain faint.

Economists pointed to a jump in temporary hiring as one of the factors behind the unexpected improvement, with recently approved labor reforms yet to produce the desired effect of getting more workers into permanent employment.

According to the National Statistics Institute's (INE) latest Survey of the Active Population (EPA) for the period July-September, which was released Friday, the jobless rate dropped to 19.79 percent from 20.09 percent the previous month. That was the first fall since the second quarter of 2007. The number of households where all members are out of work also fell for the first time since the same year.

Recently approved labor reforms have not yet reduced temporary employment

The economy went into a tailspin in the middle of 2008 and only started to show signs of stabilizing at the start of this year.

The active population in the period was virtually flat, which meant a 70,800 increase in the number of people in work and a fall in the number of people unemployed to 4.574 million. There was also an increase in the number of people finding work in the previous three months, but that was offset by a jump in the active population.

The government reacted to the figures with caution. "I have to say that there is a hard road ahead before employment recovers and the jobless rate falls," Prime Minister José Luis Rodríguez Zapatero told a news conference in Brussels.

Economists were also wary about reading too much into the figures. "The pace of job destruction has slowed, but there's still a long way to go before we can think about a recovery in employment in Spain," Bloomberg quoted Estefania Ponte, the Madrid-based head of research at Cortal Consors as saying.

The number of people on short-term contracts increased by 127,800 during the peak summer period for the services sector, while permanent hiring fell by 34,900. Most economists had expectated the jobless rate to remain steady in the third quarter. "The figure is better than expected," Reuters quoted Citigroup strategist José Luis Martínez as saying. "It could be the figure has been skewed by seasonal factors."

Changes to the job market introduced over the summer, which made it cheaper for employers to sack workers, are aimed precisely at addressing the problem of an excessive proportion of temporary contracts and the surge in unemployment that subsequently results from this when the economy turns sour.

The secretary of state for the economy, José Manuel Campa, insisted the impact of labor reforms would only start to show itself over the longer term. Campa said the EPA figures could signal a "turn-point," but was reluctant to assert the jobless rate had peaked. "It may have." Campa said he expects a further improvement in the job market in the last quarter.

Figures released Friday by the European Union using different methodology showed the jobless rate in Spain rising to 20.8 percent in September from 20.6 percent in August, compared with an unchanged figure for the EU of 9.6 percent. Spain also has by far the highest rate of youth unemployment at 42.5 percent.

According to INE's EPA, the lowest jobless rate in the third quarter in Spain was in the Basque Country at 9.98 percent and the highest in the Canary Islands at 28.67 percent. The number of people out of work fell across the economy, particularly in construction and services.