Unemployment Decrease Inspires Hope of German Recovery

In a welcome piece of news for Germany's new Chancellor Angela Merkel, the number of people out of work in the euro zone's biggest economy fell in November amid signs that the long-awaited economic recovery is finally gathering pace, data showed on Thursday.

However, analysts warned against seeing the jobless figures as a definite turnaround on the labor market, since the data were distorted by one-off factors, they argued.

The German jobless total declined by 25,000 to 4.531 million in November in raw or unadjusted terms, bringing the jobless rate down to 10.9 percent from 11.0 percent, the Federal Labor Agency in Nuremberg calculated. Unemployment usually declines in the autumn months.

But the trend this month was "more favorable than usual at this time of year," said labor office board member Heinrich Alt, who attributed the development in part to the mild weather, as well as to statistical changes.

The cut-off date for the collation of the monthly jobless statistics has been shifted from the end to the middle of the month.

Despite reservations, decrease is "impressive"

Such considerations meant that the decline in the November number was "exaggerated by around a half," Alt said. Nevertheless, the drop was "impressive and continues on from the favorable trend observed in the previous fourth months," he added.

Seasonally adjusted data published separately by the Bundesbank showed a decline in the German jobless total of around 53,000 to 4.753 million in November. The adjusted jobless rate slipped to 11.5 percent from 11.6 percent, the German central bank said.

The adjusted data, more closely watched by economists and analysts, were better than expected: consensus forecasts had suggested a more modest decline of around 20,000 in the jobless queues in November.

The data came as a welcome piece of news for Chancellor Merkel whose aim is to substantially reduce non-wage labor costs and make it cheaper for companies to take on new employees.

Good news for recovery focused chancellor

Merkel and her so-called grand coalition of left and right officially started work last week, giving top priority to bringing the moribund German economy back to life.

The conservative leader, the first-ever woman chancellor and the first government leader to come from the former communist east, has said her administration will be judged by its ability to boost growth and employment.

The latest data suggest that the German economy is indeed on the verge of a cyclical upswing, with gross domestic product growth accelerating in the third quarter of this year and leading indicators also pointing up.

Merkel's new economy minister Michael Glos hailed the decline in the November jobless figures as a "positive sign." And he reiterated the government's determination to further trim the jobless queues.

Social Democrats claim victory of reforms

The administration's new labor minister Franz Müntefering, a member of the Social Democrat SPD party, said the data confirmed that the government's labor market reforms were finally paying off. "It is the most favorable development in November since unification," Müntefering said.

The Social Democrats' assistant parliamentary secretary Gerd Andre added that the new job market figures show the first positive effects of the previous government's reforms.

"The success of the labor market policy of the red-green coalition is now being seen," he said. "The new government will now harvest the fruits of that success."

But the liberal opposition was skeptical; with FDP chief Rainer Brüderle saying that Merkel's plans to raise value-added tax (VAT) from 16 percent to 19 percent would lead to higher prices and less employment.

Analysts speak of stabilization not recovery

Analysts were also cautious about reading too much into the November jobless data.

"It represents some degree of stabilization on the labor market," noted Commerzbank economist Matthias Rubisch. "But it can't be seen as a recovery, since special statistical effects and so-called one-euro jobs are distorting the numbers."

UBS economist Edward Teather agreed. "The numbers will likely have been distorted by subsidized employment schemes, such as mini-jobs and one-euro jobs," he said.

"Nonetheless, we believe the decline in unemployment is consistent with a further stabilization of the underlying employment situation in Germany in the fourth quarter."

Fears that recovery may fall victim to ECB conditions

Observers are also concerned that the tentative recovery could be strangled by rising interest rates as the European Central Bank tightens monetary conditions in the euro area to keep inflation in check.

The ECB announced a quarter-point rise in rates to 2.25 percent later on Thursday, a move that is expected to hit Germany harder than its euro zone partners.