The labour market was little changed in June. A 1,000 monthly decline in unemployment was the smallest since it last rose in September 2014 and left the jobless rate at 6.4 percent, as expected and matching the level seen since March. The number of people out of work now stands at 2.786 million.
June's minimal drop means that joblessness over the second quarter was down just 14,000 or some 27,000 less than seen during the first three months of the year. This points to some loss of economic momentum although with vacancies up a further 8,000 on the month after a stronger revised 10,000 rise in May, the likelihood is that skills shortages are becoming more of an issue for employers.
Even so, today's data argue against any meaningful pick-up in real GDP growth this quarter after what was a disappointingly soft 0.3 percent rise in total output at the start of the year. Taken together with yesterday's surprisingly weak inflation update, the signs are that the German economy is underperforming earlier expectations which cannot be good news for the Eurozone as a whole.
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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