Not for the first time in recent months the labour market outperformed market expectations.
A 26,000 (1.0 percent) monthly fall in the number of people out of work was steeper than anything seen in 2016 and followed a larger revised 20,000 drop in December. Moreover, it proved sharp enough to reduce the jobless rate from 6.0 percent to a new post-Reunification low of 5.9 percent.
The latest data mean that unemployment in the last three months has declined fully 54,000 or some 34,000 more than in the third quarter. Despite the tide of immigration, job creation has still been sufficiently strong as to keep the jobless rate on a downward trend. As such, capacity pressures should continue to build in selected industries, potentially in turn boosting inflation.
The apparent buoyancy of the jobs market makes the marked weakness of retail sales since October (see today's report) all the more surprising and should bolster the likelihood of a significant bounce back this month. Certainly, consumer surveys have suggested that improving employment prospects have been a vital factor in what has been sustained historically high levels of sector confidence.
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.