Employment Up, Unemployment Down in Germany; But Does the Better Jobs Situation Spur Spending

We've commented on developments in Germany often in recent weeks, but it seems worthwhile as that nation's economy remains firm. Today, the Federal Statistics Office reported on the labor market through August. Employment of German residents rose 19,000 in August and 26,000 in July, continuing a string of increases into a 19th month. Employment within Germany, including commuters from surrounding countries and other foreign nationals, was stronger, adding 15,000 more in each July and August. This broader total employment is up 1.6% from a year ago. By comparison, the UK, Italy and Japan each have roughly 0.5% employment growth over the last year, while France has seen a similar 1.6% to Germany's.

Unemployment continues to decline. The ILO definition, used throughout the Euro area, puts the rate at 6.1% in August, down 2.1 points from the year-ago level and the lowest since November 1992 -- almost 15 years. The Germans own survey of "registered" unemployment gave a rate of 8.8% in September, compared with 10.6% in September 2006. The latest figure is the lowest since the same in June 1993.

The "registered" data are available for the former Western and Eastern regions of Germany. It has long been the case that the Eastern area has had the far weaker economy, but these data highlight that the improvement there is greater than in the West. After a period of relative worsening through the late 1990s, the Eastern unemployment rate has declined more than the Western rate. So from a differential of about 10 percentage points that persisted from 2001 through 2004, the difference is now 7.4%, with the rates for September at 7.3% in the West and 14.7% in the East. Both men and women have benefited, while the rates for both genders together under age 25 have remained in about the same relative positions. That said, the rates in all of Germany for people under 25 have improved noticeably; September's 8.9% is down from 11.0% a year ago and is the lowest September rate since 1993.These data don't square well with the weak business confidence measures Louise Curley wrote about Tuesday. The same anomaly we found yesterday in France and Italy seems to apply in Germany too; we pointed out that business is worried in those two countries about orders in manufacturing even as those orders have remained firm. The same collection of uncertainties apply in all these countries: will the financial turmoil that began in the US housing market extend to European goods markets; will unemployment turn back higher after such favorable behavior as recently seen in Germany? A clue might be found in retail trade data: while jobs are increasing, retail trade is not. It stalled in mid-2006 and continues to flutter within a tight range. Thus, as German business leaders and financial analysts describe eroding confidence through their professional surveys, consumers are doing so by holding back on their spending, not a sign of confidence on their part either.