Select EMU Unemployment Rates Remain Low

Unemployment in the European Monetary Union (EMU) continues to hug all-time lows at 6.2%. In the EU, the unemployment rate is at 5.8% in January, also an all-time low for that reading.

On a year-over-year basis, trends for unemployment are mixed, falling in six of the 12 monetary union countries in the table and rising for six others. However, because of country size differences, the EMU shows that the unemployment rate falls by three-tenths of a percentage point over 12 months as does the rate for the EU.

What is remarkable about these statistics is that we are looking at very tight and well performing labor markets, even though the European economy has not been doing particularly well- even with war on its doorstep and with the manufacturing sector performing particularly poorly for a long stretch of time. The local service sectors have carried the monetary union and for the most part its member countries to sustained strong economic conditions as far as the labor market is concerned.

However, as we can tell from recent elections in Europe and in the United States, there's been a great deal of disappointment and disillusionment about economic performance. Unemployment rates may be low, and may have remained low; however, economic conditions generally are not that favorable. People are not that happy and, despite the low rates of unemployment, both Europe and the United States have been battling sustained above-target rates of inflation.

Are we learning that consumers hate inflation more than we thought? The other thing that is strange about this period is that inflation has been overshooting for a long time. It's closer to being in its range in Europe than it is in the U.S. (45-continuous months of missing its target). However, both the U.S. and Europe have had a very long period of time when their target either has not been met (as in the U.S.) or has been only sporadically met (EMU) and still has inflation regarded as being excessive. Central banks have not taken the steps to control inflation even though labor market performance is excellent by historic standards. And while central banks have bent over backwards in this respect, generally consumers are not particularly swayed by the excellence of the conditions created by these policies.

Central banks chose to let inflation run hot Central banks’ choice to pursue some sort of soft-landing and avoid recession has not been particularly popular with people although they have remained for the most part fully employed. In fact, the overshooting of inflation seems to have created a great deal of unrest despite conditions of ongoing full employment both in the United States and across Europe. This will be something that economists are going to have to look at because there's nothing about this reaction that is obvious that people should naturally react this way to this kind of economic performance. One might expect that people would be happy to have full employment and although the inflation overshoot was horrific for a period of time it has since come under ‘better’ control and isn't as particularly as high as it once was; although it's also true that because of inflation being what it was, we have a situation in which prices are still quite high. High inflation can be cooled but it generally leaves higher prices in its wake, even once it is stamped out for good. And inflation is not yet stamped out for good. Economist stress that inflation has been largely tamed but… are they forgetting that consumers pay those still high prices, not just the inflation rate?

Sequential and monthly inflation changes point lower Sequentially among the 12 EMU countries in the table, six of them show unemployment declines over 12 months and six others show increases. Six of them show unemployment declines over six months while five show increases. Over three months, five of them show unemployment declines while three of them show increases. In terms of the monthly data, in November there are four countries reporting month-to-month declines compared to two reporting increases; in December five countries report month-to-month declines with five others reporting month-to-month increases. In January, the split is six reported inflation declines to four reported month-to-month increases.

Trend to lower unemployment rates cut across country size Generally, there are more unemployment rate declines being reported than increases being reported across countries; that is supported by and consistent with the aggregate data for the monetary union that shows the unemployment rate has fallen over the last year. However, the further meaning of the country level data is that the trend for the monetary union is broad, and it's not being dominated by the large countries; the small countries are not being left out of the improving process. Over the last three months, Greece and Spain are the only countries showing declines in the unemployment rate in each month. Over the broader period, looking at changes over 12 months, six months and three months, there are consistent declines in unemployment being reported in Portugal, Greece, Ireland, and Spain. There are consistent increases the unemployment rate being reported in the Netherlands. However, there also are countries with strings of increases mixed with unchanged unemployment rates reported over these three periods: Belgium, Germany, Finland, and Luxembourg.

Very little evidence of unemployment stress Among monetary union members, only three countries Luxembourg, Finland, and Austria have unemployment rates above their respective median rates that they have recorded on data since 1994. For those three countries Finland and Austria report unemployment rates above their median by a small amount by 0.4 percentage points for Austria and 0.4 percentage points for Finland. Only Luxembourg has a ‘substantial’ unemployment rate overshoot with the current unemployment rate at 6.4% compared to a median of 4.8%.

Events are changing Attention in Europe is beginning to shift away from the economic data with events in Ukraine and with a resetting of the relationship between the United States and Europe and with shifting and as yet unresolved U.S.-Ukraine relations. Geopolitical developments could come to dominate perceptions of consumer confidence in the coming months in Europe. This will be something to watch. For the time being, economic performance in the Monetary Union is hard to characterize because based upon GDP growth and traditional growth metrics the rankings of current performance are poor. However, labor markets and employment metrics are, conversely, very solid to strong. Historic comparisons are hard to find. The ongoing economic divergence keeps us off balance in terms of understanding what policymakers will do next. We do not know if they are going to come back to placing a greater priority on hitting their inflation objectives in the months ahead or if inflation ‘targets’ will continue to be viewed as loosely as they have been.