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German retail sales edge higher
March 30, 2013
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BERLIN: Germans are spending more on retail goods as unemployment remains close to a post-reunification low in Europe’s largest economy, data showed, suggesting private consumption will buoy growth this year as exports weaken. Labour Office data showed the number of people out of a job increased by 13,000 to 2.935 million in seasonally adjusted terms in March, missing a Reuters consensus forecast for unemployment to fall by 4,000. But the unemployment rate held steady at 6.9 per cent, where it has stood since October 2012.

That should work in German Chancellor Angela Merkel’s favour as she courts votes ahead of an election in September.

Combined with data released earlier on Thursday showing retail sales rose unexpectedly for a second straight month in February, the unemployment figures bode well for domestic demand, which economic advisers to the German government expect to drive growth in Europe’s largest economy this year.

“The small rise in unemployment is not dramatic. The hard winter is certainly playing a part,” said Thilo Heidrich, an economist at Postbank.

“The labour market is in robust shape despite the economic lull. An indication for that is that the number of those in employment has increased fairly significantly,” he added.

Germany’s economy, long resilient to the eurozone crisis, slowed in 2012 and output shrank by 0.6 per cent in the fourth quarter. Industrial output stalled and orders fell in January, the latest month for which this data is available.

But economists expect Europe’s paymaster to avoid recession and to return to weak growth in the first three months of 2013, which would bode well for jobless figures.

Also, while some big German companies like Commerzbank, Deutsche Telekom and Air Berlin are cutting jobs, thousands of workers are benefitting from strong wage hikes. Regional public sector employees have achieved a 5.6 per cent raise over two years and some iron and steel workers have secured a 3 per cent hike over 15 months.


“If the economy over here revives further in the course of this year we could see a decline in unemployment over the medium term,” said Commerzbank’s Bernd Weidensteiner, though he added that firms may be more cautious about hiring new employees at the moment due to uncertainty over Cyprus and Italy.

The unadjusted jobless total, which is closely watched in Germany, remained above the 3 million mark for a third consecutive month but Labour Office chief Frank-Juergen Weise said the labour market remained solid and was largely unaffected by the economic conditions of recent months.

Sentiment indicators have generally been positive so far this year, suggesting the economy is picking up in the first quarter, though the Ifo business climate index dipped in March.

A survey earlier this week showed consumer morale holding steady heading into April as Germans became more upbeat about the economy.

Their desire to shop held at a good level due to the stable labour market, easing inflation and the low interest rates being offered by banks.

Christian Schulz, senior economist at Berenberg Bank, said the retail sales data for January and February pointed to a quick rebound in the first quarter after a dismal end to 2012.

Year-on-year retail sales were down by 2.2 per cent, however, though that was partly due to there being one less sales day in February 2013 than in 2012. Germany’s solid economy is the envy of euro zone peers like Spain, where around one in four people is without a job and retail sales fell for a 32nd straight month by 8.0 per cent year-on-year in February.

Meanwhile Unemployment in Germany edged higher in March as the labour market felt the chill of the unseasonably long and cold winter weather, official data showed on Thursday.

In seasonally-adjusted terms, the jobless total rose unexpectedly by 13,000 to 2.935 million in March, according to data published by the Bundesbank or German central bank.

Analysts had been expecting no change in the seasonally-adjusted jobless total.

At the same time, the jobless rate — which measures the number of people registered as out of work against the working population as a whole — was unchanged at 6.9 per cent.

The federal labour agency in Nuremberg, which is in charge of compiling the monthly unemployment data, nevertheless insisted that the job market “continues to be in good shape.”

Both the agency and the government focus on raw or unadjusted numbers, which actually showed a fall of 58,400 in the headline jobless number to 3.098 million and the jobless rate slipped to 7.3 per cent in March from 7.4 per cent in February.

Labour agency chief Frank-Juergen Weise explained that the decline was due to the usual spring upturn, but he noted that the upturn was smaller than usual for this time of year.

Economy Minister Philipp Roesler also said the labour market “is in good form. Employment is on the rise again. But the harsh winter means that unemployment is not falling as fast as usual at this time of year.”

With business and consumer confidence rising in recent months, “the German economy is on the verge of recovery.

This will begin in spring and gather momentum as the year proceeds. The positive trends on the labour market will continue,” Roesler said.

Analysts suggested that the long and cold winter was to blame for the upward blip in the seasonally adjusted data.

“The harsh and long winter is hurting Germany’s labour market,” said Berenberg Bank economist Christian Schulz.

“But the increase in unemployment by 13,000 in March will probably remain a temporary blip,” he insisted.

With the jobless rate remaining unchanged at 6.9 per cent, “the positive trends remain unbroken,” the expert argued.

More and more jobs were continuing to be created, Schulz pointed out.

And while the pace of job creation would likely slow noticeably over the coming months, it would be “followed by a rebound in the second half of 2013 if Europe manages to keep a lid on the euro crisis,” he said.

“The job market may not be quite as buoyant as in the last couple of years with hiring intentions easing. But it remains very healthy. High job security and rising salaries should support consumption and thus domestic demand,” Schulz said.

Earlier, retail sales in Germany surprised to the upside last month, rising modestly after already clocking up strong gains the previous month, according to the federal statistics office Destatis.

Natixis economist Johannes Gareis said he was also wrongfooted by the rise in the jobless total this month.

But “today’s data do not contradict the view of a solid German labour market, defying the sustained weak economic performance of its neighbours.”

“We expect the German unemployment rate to remain close to a post-reunification low at 6.9 per cent in 2013,” he said.

Newedge Strategy analyst Annalisa Piazza put the blip in the jobless numbers down to “the recent renewed pressures of the eurozone debt crisis in March” as businesses became more cautious in their hiring plans, “Companies are sceptical about creating new jobs in the current uncertain environment,” she said.

But Jennifer McKeown at Capital Economics was pessimistic.

The unemployment data “brought more evidence that the impressive labour market recovery is petering out, with the number of unemployed in Germany rising for the ninth time in 12 months,” she said.

“In all, while a relatively robust labour market and the strong state of households’ finances should allow German consumer spending to expand modestly this year, we think that those still waiting for a strong consumer revival are likely to be disappointed,” McKeown concluded.


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