The labour market continued to make solid progress in December. A 14,000 monthly fall in the number of people out of work matched a slightly steeper revised drop in November and equalled the sharpest decline since February. Unemployment now stands at 2.757 million, a new record low since reunification in 1990. However, in line with expectations, the jobless rate was unchanged at 6.3 percent.
The year-end fall in unemployment makes for a quarterly decrease of 34,000, the best performance since the start of the year. Moreover, the demand for labour also appears to be holding up well with vacancies rising a monthly 10,000, or just 1,000 less than in November.
Today's report strengthens the case for a respectable increase in German real GDP last quarter. Nonetheless, the absorption of close to one million refugees in 2015 and probably something similar this year will not be easy and some rise joblessness in 2016 will be difficult to avoid. Indeed, the unemployment figures could well provide an increasingly misleadingly soft picture of German growth so upcoming data will need to be interpreted all the more carefully.
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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