The labour market was moderately strong in October. Unemployment fell 5,000, more than reversing September's unrevised 2,000 gain to leave the jobless rate steady at 6.4 percent, in line with market expectations. At 2.788 million the number of people out of work was at its lowest since reunification in 1991.
In fact the headline data are probably misleadingly soft as vacancies climbed fully 15,000 or twice their upwardly revised gain in September. Not for the first time the increase here would seem to suggest that employment advances would be more marked but for skills shortages in certain industries, notably services which continues to lead the economic recovery.
To this end, upcoming jobless data could be even more misleading as the influx of asylum seekers begins to swell the labour force and put upward pressure on the unemployment rate. Accordingly, additional care will be needed in interpreting the summary statistics. Still, for now the jobs figures indicate a still expanding German economy, albeit with an increasing reliance upon the service sector.
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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