German Unemployment Falls, While Employment Rises, But How Long Will It All Last?

German unemployment declined in again in June, pushing the jobless rate to the lowest level in almost 16 years. The number of people out of work, adjusted for seasonal changes, fell 38,000 from May to 3.27 million, according to data from the Nuremberg-based Federal Labor Agency released today. The seasonally adjusted unemployment rate declined to 7.8 percent from 7.9 percent in May, while the ILO comparable rate for May (released with one month's delay over the German methodology number) was stationary at 7.4%.

In a separate data release the Federal Statistical Office reported that on the basis of preliminary calculations) there were 40.19 million people employed in May, an increase by 619,000 (or 1.6%) on May 2007. Compared with April 2008, the number of persons in employment was by 111,000 ( or 0.3%).




Thus German job creation continued in May, although at a slightly slower pace than in previous months. From January to March this year, the number of persons in employment each month was by 1.8% higher than in the corresponding month of the previous year, while in April and May 2008 the increase had dropped slightly to 1.6% on April and May 2007. It is too early at this point to decide definitevely whether the current trend can be considered to mark a general slowdown on the labour market. At least part of the slowdown can probably be explained by the fact that the winter months had been unusually employment-friendly because of the mild weather, so that the usual upturn in spring was smaller, although of course this also means that growth in the earlier months of the year was not as stong as appears at first sight.


When looking at the unemployment numbers it is also important to bear in mind that the German labour force is now near its historic peak, and will now steadily decline. An indication of this can be found in the chart below where it can be seen that the rapid growth in the population available for work which characterised the years between 1997 and 2005 has now come to an end, and since 2005 the numbers have been stagnating.

This stagnation in the potential labour force (before an eventual decline if immigration is not leveraged to facilitate growth) is also a reflection of the fact that Gernamy's population is now, slowly but steadly, declining, and has been declining since Q4 2004, as can be seen in the chart below.

Nonetheless employment is rising for the time being, and unemployement falling, although many forward-looking indicators - such as the Ifo institute's business confidence index, and manufacturing orders are suggesting that German growth is set to slow. German business confidence fell to the lowest in more than two years in June, according to the reading on the Ifo index, which declined to 101.3 from 103.5 in May. That's the lowest since January 2006.





The median of five forecasts published by economic institutes last month suggests the German economy will expand 2.2 percent this year before slowing to growth of 1 percent next. This may be rather optimistic, however, and the economy may in fact have shrunk in the second quarter after expanding 1.5 percent in the first three months, according to Deputy Economy Minister Walther Otremba.

The flash purchasing managers index reading showed the employment component falling to 52.8 in June from 54.8 in May and 55.6 at the start of the year. A reading above 50 signals employment is still expanding. Among retailers, the measure fell to 49.8 in June from 51 in May, final retail PMI figures showed.