German unemployment remains unchanged but labour market is strengthening

German unemployment remained flat at a seasonally adjusted 6.8 per cent in July.

However, the number of people unemployed in Germany fell by 7,000 to 2.934m, less than the 13,000 decline the month before, but beating analyst expectations of a fall of just 4,000.

This unexpected fall is good news for Germany, but Christian Schulz, senior economist at Berenberg bank, says the real strength of the country's labour market lies in job creation.

German employers added another 10,000 jobs in June, the 9th successive increase. Unemployment in Germany is so low that firms often seem to struggle to find the required skills in the pool of remaining unemployed. Thus, they have to hire workers from the unused reserve, for example women returning to the labour market, or from abroad.

Furthermore, the number of “core” jobs rose by 17,000 in May, faster than overall employment in that month. These jobs pay well enough so that workers contribute to social security, which is helps public finances and household consumption.

Schulz points out that German unemployment is actually much lower by the International Labor Organization definition, which would put it at 5.3 per cent. He adds that this strength should have some knock-on effects.

Germany’s strong labour market should underpin household spending as it reduces job insecurity and drives wage growth. As economic uncertainty caused by the euro crisis fades, consumption should grow and constitute a pillar of growth in Germany this year. The June retail sales data released earlier today may have disappointed, but the July labour market data recall that the fundamentals for consumption in Germany remain very strong.