The labour market unexpectedly recovered a little lost ground in July. Following a marginally steeper revised 30,000 increase in June, joblessness dipped 4,000 to 2.604 million. As a result, the unemployment rate edged a tick lower to 5.6 percent, undercutting the market consensus.

However, the demand for labour continued to contract with vacancies declining a further 10,000 following a slightly larger revised 11,000 drop at quarter-end.

Today's report leaves the German labour market on a weakening trend but still tight enough to support potentially inflationary wage gains. It also puts the German ECDI at minus 4 and the ECDI-P at minus 5. Economic activity in general is running much as expected.

Unemployment has been moving higher but July's rate is expected to hold steady at 5.7 percent

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.