The labour market was unexpectedly strong last month as the number of people out of work followed a steeper revised 16,000 drop in November with a fall of some 27,000, the second sharpest decline seen in 2014. As a result, the jobless rate surprisingly dipped a tick to 6.5 percent, its lowest mark in more than twenty-three years.
Moreover, there were fresh signs of additional strength to come as vacancies rose a solid 9,000 on the month, just 1,000 less than November's upwardly revised gain.
Following a disappointingly sluggish 0.1 percent quarterly rise in total output in the third quarter, a number of recent indicators have pointed to a rather better economic performance in the October-December period. The PMI surveys were less than robust but strength in October/November retail sales (see today's calendar entry) and a healthy bounce in October new orders together hold out hope that real GDP, international developments permitting, will manage something much more respectable to close out the year.
The unemployment rate measures the number of unemployed as a percentage of the labor force for unified Germany. Financial markets tend to focus on the seasonally adjusted data released by the Federal Employment Agency as these are the most up to date.
A snag to understanding German unemployment data comes from the fact that there are several measures of unemployment available. Unemployment rates calculated by the Bundesbank are preferred but some German analysts check the unadjusted rates as well. And then there are still different rates for unemployment that are used by Eurostat to compute their unemployment rate. The spread between the Bundesbank rates and Eurostat can be quite significant. The reason for the often sizeable differential is found in the interpretation of the ILO definition.
Unlike in the U.S. no wage data are included in this report. But by tracking the jobs data, investors can sense the degree of tightness in the job market. If labor markets are tight, investors will be alert to possible inflationary pressures that could exist. If wage inflation threatens, it's a good bet that interest rates will rise; bond and stock prices will fall. No doubt that the only investors in a good mood will be the ones who watched the employment report and adjusted their portfolios to anticipate these events. In contrast, when job growth is slow or negative, then interest rates are likely to decline - boosting up bond and stock prices in the process.
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