DE: Unemployment Rate

Tue Mar 31 02:55:00 CDT 2015

Consensus Actual Previous
Level 6.5% 6.4% 6.5%

The labour market tightened unexpectedly sharply this month. A 14,000 monthly fall in the number of people out of work was short of February's unrevised 20,000 decline but still sufficient to see the unemployment rate dip a tick to a record low of 6.4 percent.

March's slide in joblessness was also accompanied by a 4,000 increase in vacancies, double the rise posted last time and optimistic for further gains in employment despite signs of skills shortages in some areas.

The latest fall means that unemployment shrank 44,000 over the first quarter. This was somewhat short of the fourth quarter decline when real GDP expanded 0.7 percent but certainly enough to suggest that the economy got off to a good start in 2015. If so, and combined with the introduction of a national minimum wage in January, coming months should see at least some increase in underlying pressure on consumer prices. The ECB would be delighted, so long as a return to accelerating inflation in Germany was mirrored across the rest of the Eurozone and not just limited to the region's largest member state.

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.