Unemployment Drops Below `Magical' 3 Million Mark, Prompting Early Release

German unemployment fell below the three-million mark in October to the lowest in 18 years as companies stepped up hiring to meet foreign demand for goods including cars and machinery, the Labor Ministry said.

The number of people out of work declined 86,000 to an unadjusted 2.945 million, the ministry in Berlin said today, releasing the figures a day before the Nuremberg-based Federal Labor Agency was scheduled to give the numbers. The seasonally adjusted total fell 3,000, the ministry said. Economists forecast a decrease of 30,000 in the adjusted number, according to the median of 31 estimates in a Bloomberg News survey.

Germany’s economic recovery offers a lifeline to Chancellor Angela Merkel as she struggles to haul her coalition back from poll lows less than six months before state elections involving 25 percent of the population. Business confidence in Germany, Europe’s largest economy, unexpectedly climbed in October to the highest level in three and a half years.

“The 3 million figure is a magical psychological threshold” that compares with the economic boom following German reunification in 1990, said Andreas Scheuerle, an economist at DekaBank in Frankfurt. “It’s the ongoing economic expansion that’s driving the labor market forward.”

Germany’s benchmark DAX Index fell 0.7 percent to 6,568 at 5:43 p.m. in Frankfurt, after earlier swinging between gains and losses at least eight times. The dollar traded at $1.3793 per euro at 5:45 p.m. in Berlin, compared with $1.3859 yesterday.

Germany’s economy grew 2.2 percent in the second quarter, the fastest pace in two decades, and the Bundesbank said on Oct. 18 that expansion may exceed 3 percent this year, higher than it forecast in August.

Volkswagen, Lufthansa

Volkswagen AG will offer permanent contracts to about 400 temporary workers in coming months, spokesman Stefan Ohletz said by phone on Oct. 26. Deutsche Lufthansa AG is hiring flight attendants for its bases in Munich and Frankfurt to fill as many as 1,600 positions, it said this month. Air Berlin Plc plans to add as many as 400 cabin staff at nine German locations.

German consumer confidence will remain at the highest level in two and a half years in November, thanks in part to the “significant relaxation on the labor market,” Nuremberg-based market research company GfK AG said Oct. 26.

In France, the number of jobseekers approached a five-year high in September, while unemployment in the euro area remained at 10.1 percent in August, the highest in more than 12 years. The rate in Germany in adjusted terms was 7.5 percent in October, the Labor Ministry said.

‘Economic Miracle’

“People are talking with good reason about a second German economic miracle,” Hans-Peter Friedrich, parliamentary leader of Merkel’s CSU Bavarian allies, said in an e-mailed statement responding to the unemployment figures. The ruling coalition is set on a “path of investment and job creation.”

Polls show Merkel has yet to benefit even as voters begin to feel the economic benefit. For the first time this year, more people say they are optimistic about the economic outlook than pessimistic, a Forsa poll for Hamburg-based Stern showed today.

Yet the chancellor’s CDU/CSU bloc dropped one percentage point in the same poll of 2,502 voters conducted Oct. 18-22. That gave Merkel’s coalition with the Free Democrats a combined 35 percent support, compared with a total of 47 percent for the opposition Social Democrats and Greens, enough for an absolute majority if elections were held now, Stern said. The margin of error was as much as 2.5 percentage points.

Merkel’s policies helped stave off mass unemployment during the financial crisis, including via a program that subsidized companies that retained workers on shorter hours rather than cutting jobs.

Wage Demands Rise

As the German economy recovers and companies’ profit improves, labor unions are seeking higher wages. IG Metall secured a 3.6 percent increase for 85,000 steel workers in September after demanding 6 percent more pay. The DBB union will demand a pay increase of at least 7 percent in 2011 wage negotiations for public servants in Germany’s 16 states, Neue Osnabruecker Zeitung reported Oct. 26.

“The government’s labor-market policies are still providing support, but the recovery is standing on its own feet now,” said Eckart Tuchtfeld, an economist at Commerzbank AG in Frankfurt. “Companies’ willingness to hire remains high.”

According to Organization for Economic Cooperation and Development data, Germany’s jobless rate was 6.8 percent in August. The equivalent rate in France was 10.1 percent and 9.6 percent in the U.S. The Group of Seven average was 8.2 percent.

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

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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