The labour market outperformed expectations in November. Following a steeper revised 7,000 decline in October, the number of people out of work fell a further 13,000 in November to equal its sharpest drop since February. As a result, the unemployment rate dipped a tick to a new post-reunification low of 6.3 percent.
Adding to the positive picture, vacancies followed a slightly larger revised 16,000 advance at the start of the quarter with another healthy gain of 11,000.
The ongoing influx of asylum seekers will make for some upside bias to joblessness in 2016 the German labour office has forecast a 70,000 increase but underlying conditions remain strong enough to suggest that this need not be a problem for economic activity. In fact, the expanding labour force could help to diminish recent signs of a pickup in capacity utilisation pressures.
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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