Economy in Brief

The EU unemployment rate fell to within a tick of its all-time low in April at 5.9% and stayed there in May. In the European Monetary Union (EMU), the unemployment rate in April fell from 6.4% in March to 6.2% in April, its all-time low; then in May it ticked up to 6.3%. This can hardly be construed as a weakening of the European labor market.

At the same time, the EMU HICP has registered 2% growth year-over-year in June. In May it was at 1.9% with the core up at a 2.4% rise year-over-year. In June, Italian and Spanish core readings are 2.1% and 2.2%, respectively. In Germany, ex-energy inflation is at 2.5%. The core for the EMU is not yet available but clearly inflation, broadly considered, is very close to touching all the bases the ECB wants it to touch. And at the same time, Europe’s rate of unemployment is at or near all-time lows at least since the EMU was formed. That looks almost like policy nirvana.

The Monetary Union is experiencing low inflation rates even for those countries (largely Mediterranean countries) that had stubbornly high inflation rates in the past. Interestingly, those formerly high-inflation countries have substantially reduced their rates of unemployment. In the U.S., it was the long low, extra-low, inflation span after the Great recession that brought the inflation rate down slowly but eventually to 50–60-year lows. The U.S. rate got to 3.5% under Trump and briefly to 3.4% under Biden. Now with similar inflation progress -and for the EMU, there is a long train of progress not looking just since Covid but looking at the collective progress since the EMU was formed.

Among the 12 EMU members listed in the table, only three Luxembourg, Finland, and Austria have unemployment rates above their median rate compared to data since 1994. Spain’s unemployment rate is still in double digits at 10.8% but is much lower than it used to be. The Greek unemployment rate is at 7.9%; Portugal’s is at 6.3%. Spain’s unemployment rate is in the 15th percentile of its ordered queue of rates; the Greek rate has been lower only 3% of the time; in Portugal, the current rate has been lower less than 20% of the time. Low inflation and low unemployment go hand in hand. But when they diverge, the solution is not to coddle unemployment. It is to backdown inflation to allow the economy to move forward thereafter and prosper with lower inflation and lower unemployment in the future. I don’t think this lesson has been broadly enough learned, but looking at Europe and the U.S. the lesson simply presents itself with exceptional clarity.

The global manufacturing PMIs from S&P are largely mixed in June with 9 of the 18 surveyed economies showing manufacturing improvement and 9 showing deterioration. However, there's relatively more improvement shown among the large economies with the euro area, Germany, the United States, the United Kingdom, and Japan also showing improvement in the manufacturing sector in June.

Median manufacturing readings moved down slightly month to month in June; the sequential readings from 12-months to six-months to three-months still show slight slippages in train.

Diffusion readings measure a breadth of improvement from period to period. These readings show a 61.1% breadth over 12 months compared to a year ago; over six months compared to 12-months the breadth slips sharply to about 27%; over three months compared to six-months breadth improves to about 39%; however, that's still below 50% which is the neutral reading. Clearly on balance more are slipping that are improving.

There are some sequential trends clearly showing that conditions are still touch and go and still not improving although the counterpoint to that is that year-over-year, the six-month to 12-month, and the three-month to six-month changes show consistent improvement for the United States, France, Germany, the euro area and that on that comparison India is also doing better at each venue.

The pooled data are not particularly impressive or encouraging. However, it's clear that there are some centers of strength and of firmness and enough to be somewhat encouraging because the large economies do tend to lead the way and right now, they are the stronger group of economies.

Readings in terms of strength show that, on the whole period, back to January 2021, the euro area, Germany, France, and the U.S. all have standings in their June readings that are above their medians; for that period Japan also has a standing above its median. India has a standing in its 90th percentile, an extremely strong reading. The large economies, and at least one of the large developing economies, are having some success.

The percentile standings, however, drive home a message that the median ranking among reporting countries for this period is in its 32nd percentile, close to the one third mark and nowhere near the median for its historic queue of data - and that's not encouraging.

Polled together on unweighted data, the U.S., the U.K., the European Monetary Union, Canada, and Japan have a queue standing on the period in only its 45th percentile. The BRIC countries are only in their 40th percentile. The average among Asian countries is only in its 37th percentile.