The mild slowdown continues. German unemployment dropped by a non-seasonally adjusted 34,900 in October, bringing the number of unemployed down to the lowest level since November last year. Currently, 2.753 million people are without a job. However, this was the weakest October improvement since 2002. In seasonally-adjusted terms, unemployment increased slightly, leaving the seasonally-adjusted unemployment rate unchanged at 6.9% after an upward revision of the September data. With hindsight, the September increase was the first increase since June 2009.
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 the latest increase in real wages 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. 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. The official vacancy index for the entire economy dropped to 160, from 161 in September. This was the fourth decline within five months and another sign of a cooling labour market. However, this is not a general cooling. Up to now, the euro crisis and the slowdown of the global economy have only affected the export sector but hardly the domestic economy. Companies operating in domestic sectors, as eg the construction sector and health services, still have a strong demand for labour. The lack of qualified workers and employees continues to be a pressing issue in some sectors, indicating that the labour market could enter a two-speeded period.
Today’s numbers provide further evidence that the labour market is gradually losing steam, indicating the cushioning impact on the economy should peter out in the coming months. However, the lack of qualified employees and still strong labour demand in domestic sectors should make the current slowdown a very gentle one.