FRANKFURT (MNI) – The unexpected upturn in German unemployment in
October is not the start of an upward trend, most analysts say, noting
that with job vacancies and employment still climbing, demand for labour
remains robust.

However, growing economic uncertainty is likely to continue to
dampen demand in the short term, representing a risk to labour
developments.

After 19 consecutive months of decline, unemployment increased by
10,000 in October in seasonally adjusted terms, which lifted the jobless
rate by 0.1 point to 7.0%. Even the most pessimistic forecasts had
called for a further decline.

Nevertheless, most analysts remain optimistic regarding the
strength of the labour market.

“The bounce we’ve seen last month is nothing that we are really
worried about,” said Barclays economist Frank Engels, noting the ongoing
growth in job vacancies. This shows “that there is still strong demand
for highly educated labour in Germany.”

The Federal Labour Agency gave a similar assessment in its latest
monthly bulletin, noting that its labour demand indicator “remains at
high levels” — up 23 points from last year.

The October PMI polls signaled a further expansion in employment,
albeit at the slowest pace in over a year. Employers’ concerns over
future business trends weighed on hiring, the report indicated.

Deka Bank economist Andreas Scheuerle also sees little cause for
concern, noting that unemployment rose only slightly during the latest
recession and that the shortage of skilled labour in some sectors
continued.

“The firms see a slowdown, but they don’t expect a long recession,”
Scheuerle explained. “I think they see a valley and they see the other
side of the valley. So, it is not costly to hoard labour.”

Scheuerle also pointed to a recent Ifo survey showing that firms
still planned to add to staff in the near term. “That may change a
little bit in the next months, but until now there is nothing like
panic,” he said.

Deka Bank expects the jobless rate to fall back to about 6.8% by
the end of the year and to remain “stable at that level” well into 2012.

Barclays’ Engels sees the jobless rate stable around 7.0% for a
while but no beginning of an upward trend. October’s unemployment was
partly a correction to “an abnormally strong labour market data print
that we saw in September,” he argued.

The fact that job vacancies continued to rise suggests less a
weakening labour market than a mismatch between workers’ skills and
available jobs, he argued.

“If anything, the mismatch might increase,” Engels said. However,
recent policies aimed at reducing the costs of hiring foreign workers
show clearly that the government is “trying to close the mismatch
partially through immigration,” he noted.

Engels’ optimism on the labour market also comes from his
expectation for an upturn in trade worldwide. “We are significantly more
positive than other investment banks or forecasters about the global
economy,” he acknowledged.

Analysts at Commerzbank are also optimistic about the labour market
in the short term, calling October’s rise a one-off and suggesting that
employment growth would still be fueled by a “good” 0.5% gain in 3Q GDP.

“The medium-term outlook is darkening, though,” the analysts
conceded, adding that, with economic growth weakening in 4Q, the labour
trend could change for the worse.

“Demand for labour will therefore only weaken markedly in the
course of next year; it could happen earlier if the debt crisis
escalates and uncertainty rises sharply,” they said in a research note.

Jennifer McKeown at Capital Economics was more gloomy. “Admittedly,
unemployment remains considerably lower than elsewhere in the Eurozone,
but the recent fall in German survey measures of hiring suggests that
October’s deterioration might mark the start of a trend,” she said in a
research note.

Already cautious spenders during even the best of times, Germans
consumers would no doubt further reduce non-essential purchases if
unemployment began rising again.

“The upshot is that as exports fall, consumers will not pick up the
slack, leaving Germany at risk of recession,” McKeown warned.

— Frankfurt bureau: +49 69 720 142; email: frankfurt@marketnews.com —

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