German unemployment falls to new low in September

The upbeat data from Europe's largest economy argues against an interest rate cut next month by the European Central Bank, which has returned to crisis mode as the debt crisis threatened to suck in banks and potentially Italy or Spain.

Seasonally adjusted figures from the labour office showed the number of unemployed fell by 26,000, far more than the 8,000-drop expected by economists, putting the jobless rate at its lowest level since reunification two decades ago.

"German companies continue to hire despite signs of a slowdown," said Christian Schulz from Berenberg Bank. "The high degree of competitiveness ... will pay off throughout the business cycle."

Germany's economy -- Europe's largest -- has stood out as a star performer in the industrial world since the end of the 2008 financial crisis, although economists now expect growth to ease in the wake of a global slowdown.

The jobs figures, which put unemployment at 6.9 percent, highlighted how past demand is delaying effects on the labour market from any slowdown for now.

"The positive trend in the labour market is continuing," said Peter Meister from BHF-Bank. "We had heard similar things from the companies -- firms' high order levels are still helping them."

Falling employment also leaves German consumers more likely to spend -- a sign of robustness that runs countercurrent to ECB concerns for the broader euro zone.

Speculation the bank may trim borrowing costs to boost growth has gained ground this month -- money markets price in a significant chance of a move in October -- but most economists still believe the bank will hold off until early next year.

"There is less reason to make a swift rate cut," said Ulrich Kater from DekaBank. "The economy is clearly not about to stall -- there is some weakness but nothing that would trigger panic mode at the ECB."

"More important for them is making liquidity available for the banking sector," he added.

NO CONSEQUENCES

Germany's swift recovery has helped stimulate growth in Europe, despite growing concerns over how the euro zone is handling the debt crisis in its weaker periphery states.

The success has been apparent on the jobs front, where unemployment has been on a steady downward path since August 2009, and the most recent forward-looking surveys suggest it is set to continue.

A survey of purchasing managers for example showed the economy created jobs for the 19th consecutive month in September, accelerating to its highest level in three months according to advance results.

Firms are upbeat in general and feel little effect from the debt crisis, although concerns over policymakers' handling of it are growing. Small- and mid-sized companies, which employ almost three-quarters of the workforce, remain confident despite often foreboding newspaper headlines referring to the debt crisis.

"These things are fully outside our area of influence," said Managing Director Claus-Peter Hartmann from Stahlbau Lamparter, a maker of steel and glass enclosures with 90 employees in the town of Kaufungen in central Germany.

"Of course it's a threat, but it's not something we feel on a daily basis," he told Reuters. "For now, there are no consequences. We have no plans to stop investing or change hiring plans in the future."

TECHNICAL NATURE

Overall though, data point to weaker growth ahead, which would at the very least slow the pace of the decline in unemployment. Most economists expect the number out of work to stabilize at under 3 million next year.

The clouds on the horizon mostly have to do with the business outlook in key export markets, where growth forecasts have been scaled back. The United States for example is Germany's second largest export market.

"Cyclical factors have thus not impacted the labour market much as yet, although it is likely that evidence of that will become apparent during the coming months," said Timo Klein from IHS Global Insight.

Growth in the Europe's powerhouse has also slowed already -- in the second quarter -- when it expanded just 0.1 percent. There was also a surprise drop in private consumption, which contracted for the first time since 2009.

The country's most closely watched economic indicator, the Ifo index of business sentiment, also fell for the third month in a row in September, and a survey of purchasing managers showed business activity came close to stalling.

Economists also stress the lagging nature of the jobs figures and say they may not reflect the latest deepening of worries that the debt crisis could send a shockwave through the economy to rival the financial turmoil of 2008.

"Unemployment fell more than expected but the reasons are mostly of a technical nature," said Unicredit's Alexander Koch.

Copyright Reuters, 2011