Economy in Brief: August 2023

Unemployment in the European Monetary Union (EMU) held at 6.4% in June, a level that has been stable for three months running. In June, for a group of 12 of some of the oldest EMU members, the unemployment rate at the country level fell for three members: in Italy, Spain, and Greece. The unemployment rate rose month-to-month in Austria, Finland, and Luxembourg. This compares to May when the unemployment rate fell in five of the reporting members and in April when the unemployment rate fell in six of these members.

Which way does the trend blow? While there has been some enthusiasm recently about some improved economic data, particularly in the United States, where data have shown some firmness and inflation has been tempered, the unemployment rates in the European Monetary Union are showing signs of running out of gas when it comes to moving to lower levels. The question at hand is: are things getting better or is the improving trend ending?

Looking at the changes over various periods over 12 months, 6 months and 3 months, we find that unemployment rates have fallen on balance over three months in five EMU members; over 6 months they've declined for seven members; and over 12 months they've declined for six members. By comparison, unemployment rates have risen over 12 months for five members; they rose over 6 months for only two members; and they've risen over 3 months for five members. There's a little bit more back and forth in the changes in unemployment rates compared to the preponderance of declines that used to dominate the trends.

No real back-tracking yet However, what we're seeing for the most part is simply a slowdown in the decline of the unemployment rate while unemployment rates themselves remain at extremely low historic levels. The unemployment rate for the Monetary Union itself has been lower only 0.7% of the time. Across Monetary Union members, only two members have unemployment rates that are above their median and that includes Luxembourg and Austria. On the other hand, Germany has an unemployment rate that has been lower only 5.8% of the time. France has an employment rate that has been lower only 2.6% of the time. Ireland has an unemployment rate that's been lower only 0.3% of the time and the Netherlands has an unemployment rate that has been lower only 9% of the time. There are far more countries with extremely low rates of unemployment than there are countries with unemployment rates above their historic medians. Still, only Ireland is at an historic low rate; Germany and France are above their lows by 0.1 percentage points. But, on average, the unemployment rate low is 1.5 percentage points lower across these 12 members.

Comparing the European Monetary Union to the United States, the United Kingdom, and Japan (using the claimant rate for the U.K. to bring the data up to date), we find more backtracking in this group recently than we do in the Monetary Union itself. The U.S. shows the unemployment rate higher on balance over 3 and 6 months. The U.K. shows the claimant rate higher over 3, 6 and 12 months. Japan’s unemployment rate is higher over 12 months and 6 months but then lower over 3 months. The U.S. has an unemployment rate that has been lower only 5.8% of the time, Japan’s rate has been lower 15.5% of the time, while in the U.K. unemployment rate has been lower 60.2% of the time (based on the claimant rate).

Manufacturing PMIs from S&P waffled in July. Among the 18 reporters, 44% of them improved on the month, a slightly greater proportion than the 38.9% than improved in June and the 33.3% that improved in May. But in all those cases, there is more deterioration than there is improvement although the median reading rose in July. It rose, but it didn’t smell like one.

The median reading improved on the month, rising by 1.4 points to a level of 49.2. The reading from manufacturing overall is below 50, confirming that output continues to decline globally. Looking at the averages from 12-months to 6-months to 3-months. The median over 12 months is 48.7, falling back to 48.4 over 6 months and to 48.2 over 3 months. The data show a very gradual erosion and on the other hand also some relative stability at readings that are just slightly deteriorating in a zone below stable output. Yeah… the results are somewhat uncomfortable, but they're not terrible. The trends don't clearly suggest that deterioration is eminent or that rebound is in the making. It's just a steady drum beat of underperformance and slightly depressing news.

Month-to-month 9 of 18 reporting countries and economic units in the table saw their manufacturing sectors worsen. Over 3 months twelve of these reporting areas worsened; 8 worsened over 6 months compared to 12 months; and over 12 months, 14 are worsening compared to 12-months ago. There's not a clear signal here from the progression. Clearly, the year-on-year comparisons are the weakest and there's some let-up in that weakness over 6 months, but then on the transition to 3-months there's a deteriorating tilt once again and we are left unsure where momentum is headed.

The rank, or queue percentile, standings have a median value in the 25th percentile, in the lower quartile of their range of values for the various countries and reporting units as of July. Only four countries have readings in their 80th percentiles: those are Indonesia, ostensibly Russia, India, and Mexico. The very weakest rankings are in the most developed areas: a 3.8 percentile standing in the EMU, a 3.8 percentile standing in Germany, a 3.8 percentile standing the U.K., and a 5.8 percentile standing in France. The proximity of extreme weakness to the war zone is notable - except for Russia, of course.