The German labour market continued to make ground this month but at its slowest pace since last September.
An 8,000 monthly fall in the number of people out of work followed a marginally smaller 14,000 decline in March and left the jobless rate at its record low of 6.4 percent, in line with expectations. The latest decrease in unemployment compares with average monthly falls of 14,000 in the first quarter and nearly 22,000 in the fourth quarter. Part of this may reflect skills shortages in some areas or the introduction of the national minimum wage in January. Nonetheless, coming on top of some other slightly disappointing recent data the apparent slowdown in employment growth may raise a few question marks about the underlying strength of the German economic recovery.
That said, vacancies increased a further 5,000 in April to match their upwardly revised March gain. The German economy is certainly still expanding but earlier hopes that the first half of 2015 would prove particularly robust are now looking rather optimistic.
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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