German unemployment dropped by a non-seasonally adjusted 156,800 in September. Officially, 3.031 million Germans are unemployed. This is the lowest level since November 2008. In seasonally-adjusted terms, unemployment dropped by 40,000, pushing the seasonally-adjusted unemployment rate further down to 7.5%, from 7.6% in August.
On time for the 20th anniversary of German reunification, the German labour market has become a real success story. This has not always been the case. The reunification shock, a rigid labour market and slack in the economy had sent unemployment rates to double-digit levels for many years. The drop in unemployment from 12% in 2005 to the current level should be a good lesson for other countries, showing that structural reforms can yield positive results. But a lot of stamina is required.
Looking ahead, today’s labour market report bodes well for private consumption. Dropping unemployment numbers should bring psychological support for consumers, increasing the feel-good-factor. Even more important for private consumption, employment has been increasing since the beginning of the year and this trend should continue. Employment expectations are close to historical highs and the official vacancy index, BA-X, has returned to its pre-crisis level.
The German labour market has defied many sceptics and it is hard to find reasons why the current trend on the labour market should not continue. Even the reduction of the short-time work schemes does not affect the positive trend. With the current tail wind, it should not take long before unemployment will drop below the psychological threshold of 3 million. The good-news-show will continue.