Friday, July 2, 2010
Unemployment rates across the G7 illustrate a broad-based labor recovery. Fantastic - now let's get to the underlying stories.
(Note: The US is the first to release the June 2010 figures. All other unemployment rates, except for the UK, are current as of May 2010.)
Germany, France, and Italy: Germany's labor market is ostensibly improving, as the unemployment rate continues its descent. However, don't be fooled by these statistics: the German government is subsidizing firms to drop hours in lieu of outright layoffs.
And across the Eurozone, fiscal tightening will drive unemployment rates up; look at what fiscal austerity got Ireland.
The United States: Spencer, as usual, gives his insightful take on the US employment release: not good. The real problem is that the US private sector is sitting on an iceberg of debt; and the only way to avoid the economic pain of large-scale default is by dropping leverage via nominal income (wages) growth.
Workers have NO pricing power. How can they when the employment to population ratio dropped 0.2% to 58.5% in June? Note that 58.5% is consistent with a 1970's-1980's style labor force with fewer females working. Wages are going nowhere until the labor market improves substantially, and the private sector can't do it atop the iceberg of debt. We need the government's help there.
UK: The pace of the labor market deterioration is slowing (not evident in the unemployment rate, which dates to just March, but more evident in the claimant count). However, the unemployment rate is expected to rise as the government's self-imposed austerity measures are put into play. Furthermore, look for weakening labor conditions to push further default amid big household leverage.
Canada: The labor market is strong as illustrated by the marked improvement in the employment figures. Expansionary policy was very likely too expansionary, and the Bank of Canada has initiated its tightening cycle. The economy is hot right now.
Update: A reader notes that April GDP was released a couple of days before this article published. Indeed the economy posted 0% economic gain in April - not hot over the month. However, the jobs picture remains solid on a month to month basis, as May 2010 employment gains were +25,000 and all (in net) in the "full time" category. Being a small-open economy, much of Canada's economic outlook depends on external factors, especially the outlook of the US economy.
Japan: The labor market is weak, as most industries posted job losses in May 2010 (access Japanese labor data here).