The labour market stagnated in July. Following a revised 1,000 increase in June unemployment rose a further 9,000, its largest advance since May 2014. Even so, the rise was not sufficient to lift the jobless rate which, at 6.4 percent, was unchanged for a fourth consecutive month and in line with market expectations.
Two successive months of net job losses will raise doubts about the economic recovery and it is probably true that so far growth in 2015 has been on the soft side of most forecasts. However, in line with June, July's pick-up in joblessness was accompanied by another sizeable gain in vacancies, this time some 10,000 or 2,000 more than at the end of last quarter. This gives weight to the view that shortages of skilled labour in selected industries are weighing on the headline data.
That said, the quarterly profile does not make good reading. Hence, after a 63,000 fall in the fourth quarter of 2014, unemployment dropped 40,000 in the first quarter and just 11,000 in the second. With both the Ifo and PMI surveys similarly offering no real signs of any acceleration in economic activity, the outlook for German growth is much more clouded than Eurozone policymakers would like.
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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