German Unemployment Rises; ‘No Turnaround’ in Sight

By Rainer Buergin and Christian Vits

Sept. 30 (Bloomberg) -- German unemployment rose in September, posing a challenge for Chancellor Angela Merkel’s incoming coalition even as signs mount that the worst of the economic crisis is over.

The number of people out of work rose 10,000 on a seasonally adjusted basis, before statistical changes are taken into account, the Nuremberg-based Federal Labor Agency said today. Including the changes, unemployment declined by 12,000 to 3.46 million. The agency said there is “no turnaround” in the labor market and the economic crisis continues to affect joblessness.

Merkel, whose government introduced stimulus measures including subsidies to sustain employment, plans to form a coalition of her Christian Democrats and Free Democratic Party after the Sept. 27 elections. While consumer and business confidence is rising as Germany climbs out of its deepest recession since World War II, job-cutting by companies from Jenoptik AG to BASF SE is marring the economic outlook.

“The labor market is now entering a crucial phase,” Carsten Brzeski, an economist at ING Group in Brussels, said in a note. “The first wave of short-term work arrangements is approaching their sell-by dates.”

Economists had forecast that unemployment would increase by 20,000 in September, according to the median of 27 estimates in a Bloomberg News survey. The jobless rate declined to 8.2 percent from 8.3 percent the previous month, today’s report showed.

Confidence

Recent data indicate that the economy, Europe’s largest, may be strengthening after the economy grew in the second quarter for the first time in more than a year. Business confidence rose to a 12-month high of 91.3 this month from 90.5 in August, the Ifo institute in Munich said on Sept. 24. Consumer sentiment has improved to the highest in 16 months.

“Although encouraging signs of recovery are emerging, the crisis is not yet over and it will take years to come back to previous levels of output,” Bundesbank Vice President Franz- Christoph Zeitler said on Sept. 24.

Services expanded at a slower pace in September than in August and manufacturing continued to contract, surveys last week showed.

Incentives

Merkel’s 85 billion euros ($124 billion) of stimulus measures included subsidizing social insurance payments to persuade companies to keep workers on shortened shifts when orders are slack.

“It was clear” that the incentives “were preventing the sharp increases seen in other euro-zone economies,” said Jennifer McKeown, an economist at Capital Economics in London. “But given that productivity is still plummeting, we think that there is a further correction in the labor market to come.”

Germany will lose 20,000 engineering jobs a month as long as the economic crisis lasts, according to Martin Kannegiesser, head of the Gesamtmetall employers’ association, the Frankfurter Allgemeine Zeitung newspaper reported yesterday. Companies that are using short-time work programs to hold on to staff will be forced to cut jobs eventually, he said.

German plant and machinery orders declined 43 percent in August from a year earlier, the Frankfurt-based VDMA machine makers association said today. Export orders slumped 41 percent and domestic orders dropped 45 percent.

According to the latest comparable figures published by the Organization for Economic Cooperation and Development, Germany’s jobless rate rose to 7.7 percent in July from a 2008 average of 7.3 percent. The unemployment rate was 9.2 percent in France and 9.4 percent in the U.S.

In western Germany, the number of people out of work fell by a seasonally adjusted 5,000 in September, while the number in eastern Germany declined by 7,000, today’s report showed.

To contact the reporter on this story: Rainer Buergin in Berlin at rbuergin1@bloomberg.net; Christian Vits in Frankfurt cvits@bloomberg.net