DE: Unemployment Rate

Fri Sep 29 02:55:00 CDT 2017

Consensus Actual Previous
Level 5.7% 5.6% 5.7%

The labour market had an unexpectedly good September. The number of people out of work fell a sizeable 23,000, significantly more than a larger revised 6,000 drop in August and the steepest decline since March. As a result, the unemployment rate dipped another tick to 5.6 percent, a new post-Reunification low.

The buoyancy of the demand for labour was also reflected in vacancies which climbed 11,000 after an upwardly revised 10,000 increase in August. Growth of vacancies has accelerated since the start of the year, in part probably due to a pick-up in real economic momentum but also due to shortages of skilled workers in selected industries. This combination should put upside pressure on wages and, hence, prices over coming months.

The ongoing strength of the jobs market should similarly ensure that the surprise slide in retail sales since June (see today's calendar update) is only short-lived. Household fundamentals are in good shape and job security should be bolstering their propensity to buy.

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.