DE: Unemployment Rate

Wed Jan 31 02:55:00 CST 2018

Consensus Actual Previous
Level 5.4% 5.4% 5.5%

The labour market began 2018 in same robust fashion as it ended 2017. A hefty 25,000 fall in joblessness followed a marginally steeper revised 30,000 drop in December to shave another tick off the unemployment rate which now stands at a new post-Reunification low of 5.4 percent. This was in line with market expectations.

Vacancies were up a relatively modest 2,000 but following their 16,000 leap at year-end, this is unlikely to signal any significant easing in the underlying demand for new hires.

Following a slight pause around the middle of 2017, the downward trend in unemployment has accelerated in recent months and January's decline was one of the most pronounced since 2011. So far, the tightening labour market has had only a limited impact upon wages but with skills shortages an increasing problem is some sectors, higher pay rates would seem only a matter of time. In turn, that would put upside pressure on underlying inflation which, at most, is currently accelerating only very slowly.

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.