DE: Unemployment Rate

Wed Feb 28 02:55:00 CST 2018

Consensus Actual Previous
Level 5.4% 5.4% 5.4%

The labour market continued to tighten this month. Joblessness fell a further 22,000 on top of the unrevised 25,000 drop in January and so extended the downward trend that began all the way back at the end of 2013. This was the fourth consecutive decline of at least 20,000 albeit not quite large enough to reduce the unemployment rate which remained at 5.4 percent, in line with market expectations and equalling the post-Reunification low.

There was also moderately good news on vacancies which rose 2,000 following a weaker reviser flat outturn in January.

The ongoing buoyancy of the jobs market suggests that the first quarter should be another good period for economic activity. However, the consumer sector, which should be benefitting significantly, has stagnated since the middle of 2017. Other factors may be at play here but current rates of payroll growth provide a healthy platform for a significant step-up in household spending.

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.