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Europe’s long winter is almost here

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As global oil prices somewhat ease as Europe’s economy overheats into recession, falling prices will eventually bring along another unfortunate aspect of the business cycle: the impact on labor markets. Inflation and unemployment are said to have an inverse relationship. When prices are generally rising, unemployment is usually falling, and when they start to fall, as in deflation, unemployment usually rises, the worst example being the 1930s and the Great Depression.

Right on schedule, the U.S. unemployment rate ticked up 0.2 percent to 3.7 percent in August, according to the Bureau of Labor Statistics, as oil eased off of more than $120 a barrel in March down to about $87 now. OPEC+ is scaling back production in preparation for lower demand that usually occurs in recessions. That is yet another recession signal.

The question of course, and seems impossible to predict, is just how bad the current recession will be. In Europe, unemployment is still generally dropping from its Covid highs. For example, in Italy, unemployment peaked in the third quarter of 2020 at 11.1 percent. Now, it’s down to 7.9 percent. As far as the business cycle goes, this indicates Europe is just hitting peak employment, even as financial news outlets are reporting recession amid Gross Domestic Product stagnation.

That means the misery to labor markets remains ahead of the world, mostly, likely dragging into 2023 and beyond before eventually, a bottom will be felt in the recession.

More HERE

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