U-Rates On The Rise

Unemployment rates are on the rise around the world. In EMU the new rate jumped up to 9.2%; the highest rate for the Area in 9-1/2 years (Sept 1999). There have been 3.1million jobs losses since the recession began. The US has seen a sharp rise in its rate of unemployment over the past year, a gain of 3.9%. This surpasses the 1.9% point rise in EMU and the 1% point rise in Japan. However, the rise in Spain as been of a whopping 8.1 percentage points, bringing in its overall rate to 18.1%. And that spells e-Zone trouble.

Since the start of the US recession in December of 2007 the German rate of unemployment has dropped – dropped - by 0.2% points. The French rate has risen by 0.2% points. Spain’s U-rate is up by 9.2% points. The US unemployment rate is higher by 4% points. In Japan the U-rate is up by 1.3% points.

Spain’s rate has jumped as the property market has collapsed. The rise there appears to have a very large structural element. In the US the rise seems to be mostly cyclical but it is a substantial rise: a gain of four percentage points compared to a level of 4.9% in December of 2007.

Europe seems to have forestalled much of the rise in the rate of unemployment – Spain excepted, of course. That leads to the conclusion that despite a substantial social safety net in Europe, the rise in unemployment is still in progress and will hit Europe later. Moreover, Europe has different sorts of stresses as the social safety net is uneven and spreads stress unevenly, across the Area. EMU is only a common currency area with some economic harmonization rules; fiscal policy is left to local custom and practice with two overall metrics in place to constrain aggregate usage. That lack of commonality is now a problem for the Area.

For the moment the e-Area’s MFG PMI indices are rising on only a slight lag with the index in the US. This is with a relatively small hike in the rate of unemployment in Europe (much of that in Spain) and a substantial jump in the US. If the unemployment problem in Europe grows worse, the European recovery that now seems to be on the heels of the US could suffer substantial erosion. There is also a possibility of political tensions in Europe as the recessions hit the various EMU nations unevenly.