Friday, August 31, 2012

German labour market worsens in small steps

German unemployment increased by a non-seasonally adjusted 29,100 in August, bringing the number of unemployment to the highest since April this year. Currently, 2.905 million people are without a job. This is less than in August 2011. The most alarming signal from today’s report is the fact that the non-seasonally adjusted monthly increase is the highest August increase since 1993. A clear signal that the best times of the German labour market are over. In seasonally-adjusted terms, unemployment increased slightly, leaving the seasonally-adjusted unemployment rate unchanged at 6.8%.

The strong labour market has been one of the main drivers of German growth in the first half of the year. Low unemployment, record high employment and wage increases supported private consumption and helped cushioning the industrial slowdown. Looking ahead, however, it is doubtful whether private consumption can really take over the baton as main growth driver for the German economy. Today’s numbers provide further evidence that the labour market is gradually losing steam and that the positive impact on the economy should peter out towards the end of the year. Employment expectations in the manufacturing sector have entered negative territory, most open vacancies are temporary jobs and several companies have reintroduced short-time work schemes. Obviously not the best climate for a new round of wage increases, consequently boding ill for private consumption..

The ongoing demographic change should keep a lid on any increase in German unemployment rates in the near future. However, it is hard to deny that the resilience of the German labour market is cracking up.

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