Economy in Brief: June 2023

Unemployment in the European monetary union continues at a very low level. The unemployment rate has come down and stayed down since peaking during the period of COVID. 2021 brought the largest decline in the unemployment rate to Europe while in 2022 the unemployment rate mostly stayed at lower levels; it has since worked to even lower levels in 2023.

The breadth of unemployment declines Twelve European Monetary Union (EMU) member countries report in the table; Five EMU members show declines in the unemployment rate in May compared to April. There had also been five declines in April compared to March, and there had been six declines in March compared to February. The breadth of the declines in the unemployment rates has been slightly less than 50% in terms of the number of countries affected; however, the proportion of countries experiencing declines in unemployment has been relatively stable.

Over the last 12 months, unemployment rates have fallen in seven of these twelve countries with the declines logged in three of the four largest countries; Spain is the exception seeing its unemployment rate rise by 0.1% over 12 months.

Unemployment rates in May range from a low of 2.9% in Germany and 3.5% in the Netherlands to a high of 12.7% in Spain and 10.8% in Greece.

The relativity of unemployment It's hard to compare unemployment rates across countries because of various labor market rigidities and differences in labor laws, custom-&-practice, and local unemployment treatment. Somewhat more telling is to compare the ranking of the current rate of unemployment to the history of unemployment country-by-country, the ranking of the current statistics. We do this on data back to 1994. On that basis, only Luxembourg has an unemployment rate that's higher than its median over this period. The median in these calculations occurs at a ranking of 50%. • Luxembourg's unemployment rate level of 4.9% is relatively low among EMU members; still, it's a rate that's above its own historic median. • Ireland with an unemployment rate of 3.8% has the lowest ranking unemployment rate among all countries in the table compared to its own history. • France comes next with the ranking of only 0.9% despite its unemployment rate being 7%. • Germany is next with the 2.9% unemployment rate that ranks 1.7% among the history of German unemployment rates back to 1994.

The ranking statistics, coupled with actual current unemployment levels, give you some idea of how different unemployment experiences have been across countries. The median ranking of the unemployment rates among the EMU members in the table is 14.1% while the average ranking is 19.2%. However, the ranking for the European Monetary Union overall based upon pooled and weighted data for the same period is 0.4%. The extraordinary difference between the ranking of the overall EMU measure and the average/median rankings of the individual members, reflects the fact that higher unemployment rates listed in the table are often for very small countries with small labor forces as well as that it also reflects the fact that unemployment rates are largely at very low levels for all countries at the same time causing the overall unemployment ranking could be even lower than the individual rankings. Only the ranking for Ireland is lower than the ranking for the entire European Monetary Union. That's an extraordinary result. It speaks to the breadth as well as the magnitude of the EMU unemployment rate decline.

U.S. and Japan In comparison, the U.S. unemployment rate at 3.7% has a 7.6 percentile ranking over the same period. Japan's unemployment rate, at 2.6%, has a 20.5 percentile ranking. Clearly, Japan has been used to having much lower unemployment rates than the European Monetary Union members generally.

Comparisons to Pre-Covid Since January 2020, before COVID struck, nearly all the EMU members report that unemployment rates are lower in May 2023. The exceptions are Austria, Belgium, and Finland among EMU members. The U.S. and Japan also are exceptions. Where unemployment rates are higher, they are generally only higher by 0.2- or 0.3-percentage points, except for Belgium where the unemployment rate is higher than January 2020 by one-half of one percentage point.

European trend Looking at the chart, we can see that for Europe COVID interrupted along ongoing decline in the rate of unemployment. COVID caused the unemployment rate in the EMU to shoot up sharply and then after making some slow and begrudging progress the EMU unemployment rate came down relatively quickly in 2021 and has come down further in 2023. However, it's hard to make statements about the recovery in the labor market by looking at the unemployment rates because COVID has also worked some mischief with employment with people's employability and with labor market participation rates as COVID put the fear of working into some people who otherwise had been gainfully employed.

Today’s GDP figures suggest that the UK economy has managed to avoid a recession in the first three months of this year, partly thanks to a pick-up in business investment.

The key points of the report can be summarised as follows:

• UK GDP grew by an unrevised 0.1% in the three months to March the same pace as in the previous quarter. This was in line with UK economists’ expectations.

• On the output side the small gain was mainly driven by an increase in output in the service sector which rose by 0.1% in Q1 after growth of 0.1% in the previous quarter.

• On the spending side, the gain in GDP was driven by a 2.4% rise in gross fixed capital formation (revised up from a prior estimate of 1.3%. A 3.3% climb in business investment volume was the main reason for this.

• Consumer spending volume, in contrast, was unchanged while government spending and net trade dragged output lower.

• Also published today were the June estimates of UK house prices from the Nationwide Building Society. These showed that house prices were fairly stable over the month, rising by a modest 0.1%, reversing a 0.1% m/m decline in May. On a year-on-year basis, however, prices fell by 3.5% after a 3.4% decline in May.