German Unemployment Falls, Resists Economic Decline

By Rainer Buergin

Nov. 27 (Bloomberg) -- German unemployment extended its decline in November, withstanding the worst recession in 12 years, as employers are slow to react to slumping orders.

The number of people out of work, adjusted for seasonal swings, dropped 10,000 in November to 3.15 million after falling 26,000 in October, the Nuremberg-based Federal Labor Agency said today. The adjusted unemployment rate held at 7.5 percent, a 16- year low.

“Companies haven’t started broad-based layoffs just yet,” said Joerg Lueschow, an economist at WestLB in Dusseldorf. “Carmakers are extending holiday shutdowns, running down flexitime accounts and temporary workers are being cut.”

The labor market follows the broader economy with a time lag of as much as nine months, according to the Cologne-based IW economic institute. As Germany’s recession began in the second quarter unemployment should begin to worsen by the start of 2009.

Companies are shortening the working day and sending home temporary staff before cutting jobs. Profit at Adecco SA and Randstad Holding NV, the two biggest suppliers of temporary staff, dropped in the third quarter, hurt by weaker demand from manufacturers, reports showed this month.

Dynamic Ending

“The positive effect of the economic upswing has ended,” Frank-Juergen Weise, the head of the Labor Agency said on Bloomberg Television. “The dynamic of improvement is weakening and will surely grind to a halt next month,”

Volkswagen AG and Porsche SE said on Nov. 25 that they’ll suspend production at their hometown plants in coming weeks. VW will shutter its factory in Wolfsburg from Dec. 18 to Jan. 11 and Porsche will halt output in Stuttgart for seven days between now and the end of January.

“At the moment we’re still adding jobs in production, quality management, clinical research and drug safety,” Biotest AG Chief Executive Officer Gregor Schulz said in a telephone interview on Nov. 25. “But we’re doing it cautiously because we’re not quite certain about developments next year.”

The German producer of blood plasma employs 1,900 people worldwide and more than 800 at its headquarters in Dreieich near Frankfurt.

Cutting Jobs

Companies including truckmakers Daimler AG and MAN AG meanwhile are cutting jobs and trimming production as the economic slowdown gathers pace. Truck sales in Germany, the largest market in Europe, turned negative in October with an 8.5 percent drop, after a sales gain of 21 percent in September.

The economy contracted in the six months through September, Germany’s benchmark DAX index shed more than 40 percent this year and the Ifo institute’s business confidence index dropped to the lowest since February 1993 in October.

“We’re assuming that unemployment won’t increase to the same extent as the economic situation worsens,” Weise told reporters in Nuremberg. While the labor market may not yet be affected by the economy’s downturn in December and January, it will be hit “in the second quarter at the latest.”

Germany’s unemployment rate will jump from an average 7.4 percent this year to 8.1 percent in 2009 and 8.6 percent in 2010, the Organization for Economic Cooperation and Development said Nov. 25. It follows International Labor Organization standards.

According to the latest comparable OECD data, Germany’s jobless rate was 7.1 percent in September, compared with 7.9 percent in France, 4 percent in Japan and 6.1 percent in the U.S. The OECD average that month was 6 percent.

Car Slump

Makers of luxury cars, one of the pillars of Germany’s economy, are reducing capacities as growth among trading partners falters. Germany is the world’s largest exporter. The U.S. economy shrank 0.5 percent in the third quarter, faster than previously estimated, the Commerce Department in Washington said Nov. 25.

Bayerische Motorenwerke AG plans to reduce its workforce by at least 8,100 by year-end, including more than 5,000 temporary staff. Daimler AG is in talks with unions about shorter working hours and buyout and early-retirement packages to trim headcount.

The prospect of a global recession next year, coupled with slower inflation, has given central banks scope to reduce interest rates. The key rate has been cut to 1 percent in the U.S., 3.25 percent in the euro region and 3 percent in the U.K.

Europe’s manufacturing and service industries contracted in November at the fastest pace in at least a decade, putting pressure on the European Central Bank to step up the pace of cuts. Council member Axel Weber said in the Nov. 26 edition of Handelsblatt “there is room for further interest-rate cuts.”

To contact the reporter on this story: Rainer Buergin in Berlin at rbuergin1@bloomberg.net.