German unemployment rises slightly in July (Roundup)

By Andrew McCathie Jul 30, 2009, 9:51 GMT

Berlin - German unemployment rose less than expected in July, data released Thursday showed, adding to signs that the labour market in Europe's biggest economy is managing to hold up in the face of the global downturn.

The Nuremberg-based Federal Labour Office said seasonally unadjusted unemployment rose by 52,000 to 3.462 million, pushing the jobless rate up to 8.2 per cent from 8.1 per cent in June.

'The recession in Germany has left its mark on the labour market in July,' said Labour Office chief Frank-Juergen Weise said releasing the data. There are now 252,000 more people without work in Germany than in the same month last year.

However, analysts had forecast a rise of 110,000 rise in the unadjusted numbers out of work this month.

The labour office said special technical factors lead to seasonally adjusted unemployment falling by 6,000 to 3.48 million.

But when the special factors were removed, seasonally adjusted unemployment, which reflects overall trends in the job market, rose by a less-than-forecast 30,000.

Analysts had predicted an increase of 50,000. Seasonally adjusted unemployment also rose by a less-than-forecast 31,000 in June.

Either way, economists have warned that Germany faced rising unemployment in the coming months as the economic crisis catches up with the nation's labour market and companies start to shed jobs.

The projections of rising unemployment come in the buildup to September's general election in Germany, with Chancellor Angela Merkel's government facing the prospect of heading into the polls against the backdrop of lengthening jobless queues.

At 483,593, the number of job vacancies in Germany in July was down 17.8 per cent compared with the same month last year. In June, job vacancies stood at 483,690.

In the meantime, dwindling inflation along with the better-than- expected performance of the labour market has helped to underpin the mood of German consumers, raising hopes that household spending could be a key pillar of growth as the nation's struggles to shake off recession.

A key forward-looking German consumer confidence index, released on Monday, jumped more than forecast in August.

The Nuremberg-based GfK marketing group said its consumer confidence index rose to 3.5 points in August, compared to an upwardly revised 3 points in July.

'But,' said Jennifer McKeown European Economist with the economics research group Capital Economics, 'as the labour market downturn continues, income growth will be squeezed later this year, suggesting that German consumers will not pull the economy out of recession.'

'Exports will need to recover first,' she said. 'Worryingly, the labour market downturn looks set to exert heavy downward pressure on wage growth, adding to the risk of a damaging, prolonged period of deflation.'

However, labour office head Weise said up until now the impact of the slowdown had been comparatively moderate with the widespread use of short-term labour contracts having helped to stabilize the labour market.

Indeed, government subsidized short-term work contracts have helped companies avoid mass layoffs despite the weakening economic environment.

But said Commerzbank economist Eckart Tuchtfeld: 'The crisis is slowly beginning to spill over onto the labour market, which has being cushioned by the short-labour contracts.'

Moreover, the Paris-based Organization for Economic Cooperation and Development has forecast that German unemployment will hit 11.6 per cent in 2010.

Underscoring the fragile state of the German economy, the nation's machinery equipment industry association VDMA said orders for its members were down 46 per cent year on year in June.

Economists expect the German economy to contract sharply, by more than 6 per cent this year.