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Prospects Weekly: Employment has staged a sustained rebound in the United States, but continues to languish in much of the Euro Area

Employment has staged a sustained rebound in the United States, but continues to languish in much of the Euro Area amid ongoing economic weakness. The sharp movements in major high-income country currencies in recent months, in particular the nearly 20 percent depreciation of the yen in real effective terms since July, appear to have had limited impact on developing-country currencies outside of East Asia. In commodity markets, the divergence in U.S and international prices of crude oil and natural gas is narrowing, perhaps reflecting market forces. 

Employment has staged a sustained rebound in the United States, but continues to languish in much of the Euro Area. The US suffered steep job losses in the post-Lehman crisis period, with employment falling 5.6% between July 2008 and December 2009. But with a gradual upturn in economic activity, US employment rose steadily and is now only 1.5% below the pre-crisis level of mid-2008. Japan’s employment fell by 2% after the crisis and has remained sluggish. The Euro Area debt crisis took a heavy toll, with employment still 3% lower, but country outcomes vary. German employment rose robustly, causing the unemployment rate to fall to 5.3% in January from 7.7% in mid-2008. But in France, employment, though stable, failed to keep up with labor force increases, causing the unemployment rate to rise to 10.6%. In the rest of the Euro Area, employment is still 6.7% lower than mid-2008 levels, with large declines in Ireland (12.5%), Portugal (13.2%), Spain (17.2%) and Greece (19.3%). 

The recent sharp movements in major high-income country currencies appear to have had limited impact on developing-country currencies, on average. The yen depreciated 18% in real effective (REER) terms between July 2012 and February 2013 in response to policy initiatives to support economic growth. In parallel, the euro appreciated 9% (REER) after the European Central Bank’s pledge of support for distressed Euro Area economies. These movements appear to have had limited impact on developing-country currencies, on average. Emerging market countries in some regions experienced appreciation pressures from higher commodity prices (Latin America) and robust private capital inflows (East Asia and Eastern Europe). But some other countries, notably South Africa and India, have experienced depreciation mainly due to domestic difficulties. The large yen depreciation has added to appreciation pressures in some of Japan’s East Asian trade partners, notably Singapore (4.8% REER appreciation since July), South Korea (6.7%) and Thailand (8.8%).

 

U.S and international crude oil and natural gas prices may be starting to converge in response to market forces.  The US energy boom saw oil and gas production rise by 15% and 24% since 2007 causing domestic gas prices to plummet to one-fourth of prices in Europe and Japan. Cheap US gas, and the possibility that it might be exported (despite administrative impediments and a lack of liquefied natural gas (LNG) capacity), have put some downward pressure on European gas prices, which no longer track crude prices as closely as in the past. Japanese LNG prices, however, remain in lock-step with oil. International (Brent) and US (WTI) oil prices may also be converging as US pipeline bottlenecks are being bypassed with rail shipments to Gulf Coast refineries. However, stronger demand in the US than in Europe (reflecting divergent economic performance) also helps explain the narrowing of Brent and WTI crude prices.

 

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