EMU Unemployment Rate Is Flat in January But Seems Less Bulletproof

Low and stable unemployment The unemployment rate in the European Monetary Union (EMU) in January stands at 6.7%, the same place it stood in December and has stood for three months in a row and in nine of the last 10 months. That is excellent stability. If we rank the level of the unemployment rate since the mid-1990s, the level of the unemployment rate has been lower in the EMU only about 3.2% of the time. That marks this rate as exceptionally low.

Are trends deteriorating? However, there's evidence that some of the strength, as well as the trend improvement, in the labor market are losing momentum in January. Of the 12 monetary union countries that report in the table, only two show lower rates of unemployment in January compared to December. In December, three countries showed lower rates of unemployment month-to-month. In November, there were four countries that logged lower rates of unemployment than the month before. The tendency for unemployment rates to fall is diminishing.

In January, there were six countries for which the rate of unemployment increased month-to-month. This compares to three countries that had that characteristic in December, and five in November. So far, the increases in unemployment rates month-to-month have been small or have occurred in countries with small labor markets. They have not changed the trend or overall level of the rate turning by upward for the EMU-wide unemployment rate.

Broader, sequential trends Looking at the broader data over three months compared to six months, four countries show declining rates of unemployment compared to six showing increasing rates of unemployment. Comparing the six-month change in unemployment to the change over 12 months, five countries show lower rates of unemployment over 6 months compared to 12 months and six countries show higher unemployment rates over 6 months compared to 12 months. Comparing the changes over 12 months to the changes that occurred over 12 months a year ago, we find that unemployment rates are lower in six countries on this basis and higher in six countries on this basis – a standoff. The overall rate for the European monetary system shows a decline of 0.2 percentage points over 12 months, an unchanged performance over 6 months and an increase in the unemployment rate by one tenth of one percentage point over 3 months.

Unemployment progress has a long track record of success The overall unemployment rate, as noted above, is still extremely low; the EMU-wide unemployment rate compared to January 2020 before COVID struck is now a half a percentage point lower. Only four of twelve countries have higher unemployment rates today compared to January 2020. Looking back from the mid-1990s, only two countries in the table have unemployment rates that are above their historic medians on that timeline; and those are Austria and Luxembourg. Meanwhile, four countries have unemployment rates that rank lower less than 10% of the time that mark them as countries with extremely low rates of unemployment (Germany, France, Ireland, and the Netherlands).

The future seems less bright The bottom line is that unemployment conditions in the monetary union remain excellent. Unemployment rates are low, they're low across the board, and those are good characteristics. However, the tendency for unemployment rates to fall is diminishing and the tendency for unemployment rates to rise across countries is becoming more common. With the central bank raising interest rates, and with inflation high, these trends seem to portend economic weakness and higher unemployment rates ahead. There's been a lot of talk about recessions and forecasts of recessions, but we're now beginning to see some real sector data that are putting some meat on the bones of a deteriorating economic outlook.