German Labor Markets Deteriorate For the Second Month
German ILO unemployment rose to 7.3% in January, from 7.2% in December. This was in line with expectations. The focus remains on the national rate for February, released later today. We are looking for a rise in the sa jobless total of 45K, which is broadly in line with our median of 50K and should bring the jobless rate to 7.9% from 7.8% in the previous month. Labor Agency spokesman Hammersen already confirmed this morning, that unemployment rose in absolute as well as seasonally adjusted terms due to the state of the economy and winter weather. Unemployment started to rise in December as the slump in export demand forced companies to cut back production and lay off staff. The rise in jobless figures will push up the government's social security spending and further weigh on already weak consumption figures.
Meanwhile, German GfK consumer confidence rose to 2.6 in March and the February was revised up to 2.3 from 2.2 reported intially. We had been looking for a March reading of 2.3 and our median was 2.2, so data were much better than expected and confidence seems to defy gloomy growth data and the pick up in unemployment since December last year. The breakdown showed a marked improvement in the reading for income expectations in February, the last month for which data are availble. This is likely related to the sharp drop in inflation in recent month. The reading for the overall economic outlook also improved for the first time since December last year. At -27.9 it is still firmly in negative territory, which indicates pessimists outnumber optimists, but the improvement is nevertheless encouraging. The reading for the willingness to buy dropped to 14.6 from 15.5, but this is the second consecutive month with a positive reading, which is very good news and squares with the improvement in retail sentiment as reflected in the Ifo. All in all data adds to the glimmers of hope that come from the improvements in the ZEW and the Ifo future expectations index and support expectations for a stabilisation in overall GDP growth in the second half of the year.