DE: Unemployment Rate

January 3, 2017 02:55 CST

Consensus Actual Previous
Level 6.0% 6.0% 6.0%

The labour market saw out 2016 on an unexpectedly strong note. Although the jobless rate was unchanged at a record equalling post-Reunification low of 6.0 percent, the number of people out of work fell some 17,000. This followed a larger revised 6,000 decline in November and was the steepest drop since January.

Moreover, the outlook for jobs improved too with vacancies rising 7,000 on the month after a 4,000 increase last time.

The December data yield a fourth quarter decline in unemployment of 37,000. This compares favourably with a fall of 17,000 in the third quarter and decreases of 29,000 and 32,000 in the first and second quarters respectively. Accordingly, the labour market data are consistent with recent PMIs in signalling a respectable year-end for real GDP growth.

The unemployment rate is calculated by the Federal Employment Agency based on the number of unemployed persons as a percentage of the number of all civilian members of the labour force (dependant civilian employed persons, the self-employed family workers and unemployed). Unemployed is defined as persons who between the ages of 15 and 65 and who are without employment or only with short-time employment (currently less than 15 hours per week) and seeking an employment of at least 15 hours per week subject to compulsory insurance.

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.