The German jobs market tightened slightly in August. A 7,000 monthly decline in the number of people out of work followed a marginally smaller revised 8,000 increase in July but was not enough to reduce the unemployment rate from the 6.4 percent historic low at which it has been since April.
Prospects for future job creation were modestly positive as vacancies followed a 9,000 monthly rise at the start of the quarter with a further 4,000 gain last month. This is consistent with the Ifo report issued last week which found the willingness to hire among businesses at its highest level since 2011.
Growth of the German economy continues to create new job opportunities and unemployment would probably be falling rather faster but for skills shortages in a number of areas. Nonetheless, today's figures should be in line with what looks likely to be, a solid rise in GDP this quarter.
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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