Haver Analytics
Haver Analytics
Europe
| May 03 2023

Unemployment Rate in EMU to Fresh Record Low in April

The unemployment rate in the European Monetary Union had reached a new low at 6.5% in March, down from 6.6% in January and February. On data back to the year 2000, Germany and France both have new low levels of unemployment. All the members of the monetary union listed in the table with the exception of Luxembourg report unemployment rates that are below their historic medians. Luxembourg is above its median by a small amount with a rank percentile standing at its 52.9 percentile; it's median occurs at its 50th percentile.

Among the twelve countries that report in the table, only two show about employment rates that are not below the 30th percentile in ranking; Luxembourg and Spain whose standing is at its 31.7 percentile. Portugal is close at the 29.4 percentile, Austria is at the 25.6 percentile with Greece at a 24.8 percentile standing.

There also are rank percentile standings below their 16th percentile – seven of them. Unemployment rates continue to broadly fall in the European Monetary Union despite high inflation and despite ongoing rate hikes by the European Central Bank. There are other central banks in Europe hiking rates as well as a substantial array of hikes is being executed in the United States – hikes from the U.S. continued at the Fed’s meeting today.

Rate declines in EMU Among the 12 reporting EMU countries, all but four have unemployment rate declines over three months; two of them, the Netherlands and Luxembourg, have no change in their unemployment rates over three-months. Over 6 months all but three countries have declines in their unemployment rates and over 12 months all but five countries have declines in their unemployment rates among the twelve European Monetary Union countries listed in the table.

In comparison, the United States has a decline in the unemployment rate in March. On the same timeline, it has an unemployment rate that is in the bottom 2% of all unemployment rates since 2000. The U.S. employment rate is unchanged over three months and six months, but it's lower by one-tenth of one percentage point over 12 months.

The unemployment rate profile that we see in Europe is surprising in part because inflation rates in Europe remain so high - although the rate hikes in the United States have been more extreme than in Europe and the U.S. unemployment rate has remained low, unemployment rates in Europe surprise in the wake of ECB policy as well. In the European Monetary Union, the unemployment rate has fallen by 3-tenths of a percentage point over 12 months, more than it's fallen in the U.S.

Strange times... It's quite unusual after more than a year of hiking rates to see the unemployment rates falling as much as they are and getting down close to either all-time lows or near 40-to-50-year lows. However, there are unusual circumstances in this cycle. Among the oddities has been an extremely rapid hike in rates - in the case of the U.S. anyway. The Federal Reserve has, after all this time, still not clearly placed the federal funds rate above the 12-month trailing rate of inflation. In Europe, interest rates are still below the inflation rate there as well. Central banks, in this cycle, started out with interest rates extremely low and began to raise rates chasing after inflation as it rose, the whole time… That's what is responsible for the illusion of central banks having been tightening policy for a long time. While that illusion is not incorrect, the distorting part of that illusion is that because policy has been tightening for this period of time central banks may have ‘over-done’ it. The fact is that central banks have been tightening but the policy still has not gotten to be tight ‘Tightening’ and ‘tight’ are two different things.

This is why it has been possible for unemployment rates to continue to fall and for growth in these economies to continue to be relatively robust. Policy has not yet become tight. But the Fed is getting to a point where inflation levels are closing in on inflation levels and, therefore, the Fed is closing in on a period where monetary policy will not be construed as stimulative but rather will begin to have braking effects and will cause growth to slow. Soon policy will spoil the illusion that central banks can raise rates and growth can continue to be robust. That's simply not going to continue to happen as inflation rises above the rate of inflation. Europe is not there yet, but the U.S. is...

  • Robert A. Brusca is Chief Economist of Fact and Opinion Economics, a consulting firm he founded in Manhattan. He has been an economist on Wall Street for over 25 years. He has visited central banking and large institutional clients in over 30 countries in his career as an economist. Mr. Brusca was a Divisional Research Chief at the Federal Reserve Bank of NY (Chief of the International Financial markets Division), a Fed Watcher at Irving Trust and Chief Economist at Nikko Securities International. He is widely quoted and appears in various media.   Mr. Brusca holds an MA and Ph.D. in economics from Michigan State University and a BA in Economics from the University of Michigan. His research pursues his strong interests in non aligned policy economics as well as international economics. FAO Economics’ research targets investors to assist them in making better investment decisions in stocks, bonds and in a variety of international assets. The company does not manage money and has no conflicts in giving economic advice.

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