Wednesday, August 4, 2004

BERLIN, Germany (Reuters) -- German unemployment rose in July for a sixth straight month, showing the economic recovery remains too weak to stimulate the labor market, the Federal Labor Office said on Wednesday.

The office said the jobless total adjusted for seasonal factors rose 11,000 month on month to 4.386 million after June data was revised to show a slight increase rather than an originally reported drop.

The unadjusted total, which gets more prominence in German media, rose 126,500 to 4.360 million -- a record for the month -- as school leavers swelled the ranks of the jobless in Europe's largest economy.

"All signs suggest the German economy is recovering. But this isn't yet having an effect on the labour market,'' the office said in a statement.

A sustained fall in unemployment will occur next year at the earliest, and only if growth exceeds two percent, Labor Office official Heinrich Alt told a news conference.

The office has already warned that benefit reforms due to take effect in January could push headline unemployment over five million at the start of next year as around a million people now receiving social aid are classed as ready for work.

The rise in adjusted unemployment was twice as strong as forecast in a Reuters poll. Economists said a labour market recovery was probably still months away despite the fact the economy is now growing at its fastest rate in three years.

Second quarter gross domestic product data to be released on August 12 will show the economy expanded around 0.5 percent in the second quarter, outpacing growth of 0.4 percent in the first three months of the year, the Bundesbank said last month.

Jobless recovery
But manufacturers profiting from booming foreign demand for German cars and engineering products do not feel confident enough yet to hire, helping keep the domestic economy subdued.

A survey of 1,004 Germans conducted July 29-30 published by Stern magazine on Wednesday found 77 percent do not believe there will be an economic recovery this year. One third of respondents felt their jobs were not safe.

The Reuters manufacturing and services purchasing managers surveys showed this week that firms continued to reduce payrolls, although at a slower rate than in recent months. Manufacturers may even have stopped layoffs, the data suggested.

Dutch temporary employment agency Randstad reported on Wednesday it had a strong second quarter in Germany but the Labor Office said vacancies fell in July on a seasonally adjusted basis to a multi-year low of 282,000.

The office also said payrolls continued to fall in May, the latest month for which data is available.

In western Germany, adjusted unemployment increased 15,000, while in eastern states it declined 4,000 -- a difference attributed to the fact the end of the school year fell in June in many eastern states.

"What we're seeing at the moment is a classic jobless recovery in Germany. The job market is the Achilles' heel of the upswing that we're seeing at the moment, said Andreas Rees, an economist at Munich-based HVB bank.

"The export-driven recovery is not having an impact on the job market and is not providing any positive drivers for private consumption.''

But the Economy Ministry said the jobless data did not call into question signs the labour market situation was stabilizing.

"Positive economic indicators give hope that growth will still exceed the employment threshold and the numbers in work will increase again,'' it said in a statement, citing rising manufacturing output and orders.

It said the government's labor market reforms had already cut the rate of growth needed to generate employment to around 1.5 percent. The Labor Office's Alt said adjusted jobless roles should stabilize once economic growth exceeded 1.8 percent.

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