EMU Unemployment Holds at Lows

Unemployment in the EMU in May stayed at its cycle (and all-time) low of 6.4%. There is evidence of small backtracking in Germany, but that is modest backtracking. Trend unemployment is still low and broadly low across the EMU.

In May unemployment rates fell relative to April in Finland, Greece, and in the Netherlands- in each case the rate fell by one tenth of one percentage point. Unemployment rates rose month-to-month in Austria, Belgium, France, Luxembourg, and Portugal. The rate also rose in Europe’s non-EMU/EU member U.K., a rise of 0.2 percentage points.

However, across the 12-representative EMU members in the table, the median rank standing of the unemployment rates is in its 19th percentile, the average is in its 26.9 percentile – both rankings confirming low rates of unemployment. The weighted rate for all of the EMU is much lower because the coincidence of having all these rates at relative lows at the same is so unusual. Only Luxembourg has an unemployment rate that is strong, about its historic median (above a ranking of 50%). The lowest rankings are still below their respective 10 percentiles for Ireland, Italy, and France. In addition, the Netherlands, Germany, and Belgium have rankings below their 20th percentiles. While many measures showing industrial data have not done so well compared to their pre-covid levels, for unemployment rates across countries have unemployment rates below their January 2020 levels except for four countries: Austria, Belgium, Germany, and Finland. Luxembourg’s rate is unchanged.

Generally, unemployment rates are quite low and show only modest- if any- upward pressure. Unemployment rates do not provide a strong talking point on the need to have interest rate reductions. On the other hand, inflation has been tempered and the preliminary June report delivers another low monthly inflation result for the ECB to ponder. With a 2% objective, inflation now runs at just 2.5%, year-on-year. The pace is excessive but not by that much. The real problem for the ECB is its legacy of misses and excessive inflation in months past. It needs to make sure that it does not let that camel get its nose under the tent again. Among the four largest EMU economies, only Italy has its HICP below a 2% pace. Italy also has a core rate running at 2.1% over 12 months. However, Germany, France, and Italy show 3-month HICP growth rates stronger than their respective 12-month results. Spain shows a slowdown over three months, but also logs the highest inflation pace at 3.5% year-on-year among the four largest EMU economies. Even though the 3-month annualized ECB pace is only 1.7%, there clearly are still some percolating inflation pressures.

Low unemployment rates continue to be a mark of success in the EMU. Whatever degradation on the employment front exists, it is slow-moving. Meanwhile, inflation has come down and is not a real ‘problem’ as far as its year-on-pace goes, but over three months pressures show signs of flaring in the large countries. That is a reason for the ECB to continue to sit and watch. Monetary policy is, for the most part, in a policy holding-pattern and in an information-gathering stage globally.