Tuesday, December 1, 2009

German consumer sends sign of life

Today, the often accursed German consumer sent some signs of life. Strong retail sales and continuing surprises from the labour market opened the fourth quarter on a positive note.

German unemployment decreased by a non-seasonally adjusted 13,200 in November. Officially, 3.215 million Germans are unemployed, the lowest level since December 2008. At the same time, the seasonally-adjusted unemployment rate dropped to 8.1%, from a revised 8.2% in October. It is no secret anymore, earlier reforms and, above all, subsidised short-term work have made the labour market more crisis-resistant than during earlier recessions. The remarkable performance of the labour market can be illustrated by some quick back-of-the-envelope estimates. Applying the pattern of earlier periods, the current output loss would have destroyed around 2.5 million jobs. Quite a different ballpark number than the 1.5 million people who are currently registered under short-term work schemes.

The strong labour market performance is an important driver behind rebounding retail sales in October. Adjusted for inflation and seasonal swings and excluding car sales, German retail sales increased by 0.5% MoM (-1.7% YoY) in October, after a 0.2% MoM decrease in September.

Looking ahead, however, there is no new German job wonder, yet. Unemployment will continue to increase until 2010 but not as much as some pessimists had thought. With the improving economic outlook, gradually filling order books and increasing demand for new labour, it looks as if the threat of exploding unemployment rates has been averted. The German government’s decision to extend short-term work schemes until the end of 2010 should help limiting the inevitable increase in unemployment next year. However, similar to the car scrap scheme, labour market measures have been a cushion during the downturn but they are not likely to actively boost the recovery. The downside of the short-term schemes probably is that even with an ongoing economic recovery employment will hardly grow in the next two years, limiting the upward potential for private consumption. Alleviating the pain is not the same as curing the sickness.

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