Economy in Brief: January 2024

U.K. manufacturing output rose by 0.4% in November after falling by 1.3% in October and falling by 0.4% in September. Sequentially, manufacturing output is weakening; it advances by 1.2% year-over-year, the growth rate shrinks to zero over six months and shrinks further to a -5% annual rate over three months.

Trends for output by sector are somewhat complicated with recent months not providing a very clear picture. Among the observations for consumer durables and nondurables output, intermediate goods, and capital goods, only the capital goods industry shows a decline in November. However, manufacturing and all these sectors and subsectors showed declines in October, while in September only consumer durable goods showed an increase along with a minor rise in consumer nondurable goods, intermediate goods show another relatively sharp decline and capital goods were flat.

Sequential growth rates from 12-months to six-months to three-months, as already mentioned, reveal a steady deceleration in the growth rates for manufacturing. But this is not so clearly expressed across the sectors, as consumer durables and nondurables show unclear patterns and only intermediate goods and capital goods output succumb to the pattern of sequential worsening deterioration. Consumer nondurables, in fact, show positive-growth rates on all horizons.

Upon turning to quarter-to-date calculations that compare the annualized growth rates two months into the fourth quarter with the average for the third quarter, we find negative growth in all the components in the table, except under ‘industry-detail’ there, food, beverages & tobacco show a hearty gain.

To get an idea of how tight production might be, I look at current output levels as a percent of their maximum output on data back to 2010. Manufacturing is at 90% of its past peak on this period. Consumer durables is at 94% of its peak, nondurables at nearly 97% of their peak. Not surprisingly, food, beverages & tobacco, which tend to be very trend-dominated, are essentially at their peak reading at a 99.9 percentile standing (stronger only in May 2022). The weakest standing is for mining & quarrying at a 43.7 percentile mark. And surprisingly the utility usage for gas, electricity & water has only 53.6% of its past cycle peak.

The column to the far right looks at the simple percent change in current output compared to levels on January 2020 before the pandemic struck. Output is lower for manufacturing overall by nearly 5% and is higher only for consumer durables (by 1.2%) and consumer nondurables (by 13.9%). For more detailed industries, food, beverages & tobacco are higher by 16.9%, textile & leather output is higher by a very strong 43.6%, motor vehicle & trailer output is higher by 3.2%. Mining & quarrying output is lower by 38.8%. Utility output is lower by 42.2%. This is an astonishingly strong decline as utilities service ongoing activity and growth and except for very small margins is not inventoriable.

The unemployment rate in the European Monetary Union in November 2023 is tied for its all-time low, a low reached in June 2023. The percentile standing of the unemployment rate puts it in its 0.3 percentile, lower than any of the EMU countries in the table. Within the Monetary Union, Belgium's unemployment rate stands at its 10.8 percentile, the same as Germany’s. In France the unemployment rate has a 6.4 percentile standing, and the Dutch unemployment rate has a 9.3 percentile standing. The United States where the unemployment rate is within a stone’s throw of a 50-year low is at its 8.4-percentile. Japan, that chronically runs very low unemployment rates, has its rate at its 16.5 percentile.

Historically low rates of unemployment- The only entries in the table with unemployment rate above their historic median are the United Kingdom where the claimant rate is at its 61.6 percentile. The European Monetary Union member country that has an above-median unemployment rate is Luxembourg, a very small country with the concentration of jobs in the services sector and in the financial sector. Its unemployment rate has an 81.7 percentile standing, although it has the sixth lowest reported unemployment rate among the twelve countries in the table. Traditionally, Luxembourg has run a relative low rate of unemployment, that accounts for the relatively high standing of a union-wide moderate unemployment rate.

The EMU rate falls on balance over 12-months- The unemployment rate for the European Monetary Union in November has fallen over 12 months by 0.3 percentage points while looking at the member countries on the table only five of twelve countries in the table have seen their own unemployment rates fall over 12 months. This EMU-wide rate falls because countries with falling unemployment rates generally had relatively sizable drops over 12 months while the large countries reporting in the table such as Germany and France and moderately sized Portugal, each had an unemployment rate increase of just 0.1 percentage point over 12 months.

Still, rate declines appear to less common- However, looking at monthly patterns, we see four countries with unemployment rates declining in November, only three with the unemployment rates declining in October, and only one with employment rate declining in September. Unemployment rates were unchanged in November in four countries, in October six countries had unemployment rates unchanged from their level in September, and in September six countries had unemployment rate levels unchanged from their level in August. The declines in the unemployment rate are becoming rarer in the monetary union and that's not surprising when looking at the historic rankings and the current low levels of unemployment rates.

Paradox of the lower EMU standing than for any member country- The unemployment rate and the monetary union has a much lower ranking than for individual member countries because it's the coincidence of having low rates and all the countries. That synchronization is responsible for making the EMU overall unemployment rate rank so low. Having only the smallest country listed in the table with an unemployment rate above its median clearly underscores how widespread low unemployment has become across the monetary union.