Economy in Brief

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.

In this week's newsletter, we analyze recent developments in advanced Asian economies, highlighting their gains from the upswing in the global tech cycle. Robust demand for AI-related semiconductor products and equipment continues to drive this upswing, bolstering overall economic growth. Additionally, we explore the geopolitical dynamics influencing the semiconductor industry. This includes US efforts to strengthen its onshore chip manufacturing capabilities and China's proactive measures to secure chipmaking equipment, possibly in anticipation of future export restrictions.

Shifting focus from semiconductors, we delve into domestic issues within these advanced Asian economies. Specifically, we address concerns such as the growth of household debt in South Korea and Taiwan. Central banks in these regions are actively addressing these concerns through measures aimed at controlling excessive debt accumulation. Meanwhile, Japan's household sector has shown promising signs of improvement recently.

Developments in Advanced Asia Taiwan’s electronics sector has lately demonstrated strong growth, largely thanks to the current upswing in the global tech cycle. Chart 1 highlights a significant acceleration in the industrial production of semiconductor-related products, such as electronic parts and components, which surged by nearly 30% y/y in May. Moreover, production of other electronic goods, including computers, saw a substantial increase of 31.8% over the same period. Forward-looking indicators such as electronics export orders also point towards robust demand in the near future, having grown 9.2% m/m. Setting aside cyclical considerations, the trajectory of Taiwan’s semiconductor sector is deeply intertwined with global geopolitics. For instance, the US government is actively advancing onshore advanced chip manufacturing capabilities through initiatives like the CHIPS Act. This includes substantial funding to incentivize Taiwan’s TSMC, a global leader in chip production, to establish manufacturing facilities for highly advanced two-nanometer chips within the US. This strategic endeavour seeks to counter the trend of offshoring crucial chip production capacity away from the US in recent decades.

In the graph that accompanies this article, I have chosen to plot industrial production as a level instead of as a growth rate- the latter treatment would be more common. The reason for it, as you can see, is that industrial production has been without a positive trend for some time. The prevailing trend over a longer period (back to 2021 or further depending on how you construct a trend) is clearly negative although the short-term trend shows a very clear revival in progress from early this year.

These complications make growth rates less useful to calculate because production has contrary long-term and short-term trends, and its path is peppered with a good deal of volatility which increases the chance that any growth rate you calculate is not very meaningful.

Having said that, I also included table that calculates growth rates! Seeing the chart and plotting industrial production as a level together allows us to understand what's going on with the growth rates a little bit better.

Industrial production declines over 12 months and over six months but then makes a very strong recovery over three months for both total IP and for manufacturing. Total industrial production is rising at a 19.3% compounded annual rate over three months while manufacturing output rises at a 28.5% annual rate over three months. However, both show that output falls by 0.4% over 12 months, and for the year before that both headline industrial production and manufacturing rose on 12-month growth rates of 2.2% and 5.3%, respectively.

Looking at manufacturing sectors for consumer goods, intermediate goods, and investment goods, we have all three sectors showing output advancing in May, falling in April, and advancing in March. The recent months have been volatile. Looking at growth rates over 12 months, six months and three months, all the sectors have slightly different growth characteristics. Consumer goods output declines over 12 months and six months but grows strongly over three months. Intermediate goods output rises over 12 months, falls over six months, and then rises strongly over three months. Investment goods output declines over 12 months, grows at nearly a 4% pace over six months, and then explodes at a nearly 50% annual rate over three months. The output of investment goods is the only sector that shows persistent acceleration.

Moving out of manufacturing to mining and electric utilities & gas, we find that mining shows declines over 12 months and six months, with a nearly 10% annual rate increase logged over three months. Electricity & gas show that persistent acceleration from minus 0.2% growth over 12 months, to nearly identical ‘zero growth rate’ over six months and to a nearly 10% annual rate of growth over three months.

Despite the turbulence and the inconsistency across different timelines and in comparing timelines across different sectors, the one constant here is that over three months Japan's output is doing quite well no matter what sector you look at. Despite that, it's still true that, for the most part, industry shows increases in March, versus declines in April, topped by increases in May. It isn't exactly like Japan is now on this steady recovering platform; it's just that the data line up this way and because of that it doesn't give us any confidence that even with the strong trend over three months that it's going to have staying power.

Still, in the quarter-to-date the annual rate increase of overall industrial production manufacturing and all the sectors is impressively and consistently large.

However, as the chart at the top reminds us Japan has been in a period of relatively difficult growth. If we look at the level of output now calculating the percent change in output from where it was in January 2020, we are looking at a period slightly in excessive of four-years. And yet overall and manufacturing output both are lower, the output of intermediate goods is lower, consumer goods output is flat, and only investment goods output is up by 3.1% over that four-year span. Mining output is down, and the output of electric and gas utilities is lower on balance as well.