German Jobs Machine Falters For First Time in Three Years

German unemployment rose twice as much as economists forecast in October and the jobless rate increased for the first time in three years as the sovereign debt crisis damped economic growth and investment.

The number of people out of work climbed a seasonally adjusted 20,000 from September to 2.94 million, the Federal Labor Agency in Nuremberg said today. Economists forecast a gain of 10,000, the median of 31 estimates in a Bloomberg News survey shows. The adjusted jobless rate rose from a two-decade low of 6.8 percent in August to a revised 6.9 percent in September and held there in October, the agency said.

The German economy may contract in the fourth quarter as slowing global growth and Europe’s debt crisis crimp demand for its exports, the Bundesbank said last week. Business confidence has dropped to a 2 1/2 year low. At the same time, the relatively robust labor market has boosted consumer sentiment, and financial markets have rallied since the European Central Bank pledged to do whatever it takes to preserve the euro.

Today’s report “is another sign of economic weakness even in core euro-zone countries,” said Christian Schulz, senior economist at Berenberg Bank in London. “It marginally increases the likelihood of further monetary stimulus.”

Stocks Rally

The euro was little changed and traded at $1.2951 at noon in Frankfurt, up 0.4 percent today.

European stocks rose as companies from BP Plc to Deutsche Bank AG reported earnings that topped estimates. The Stoxx Europe 600 Index added 0.8 percent to 271.55. Asian shares and U.S. futures were little changed as Hurricane Sandy closed New York markets for a second day.

On an unadjusted basis, the number of unemployed people in Germany, Europe’s largest economy, fell to 2.75 million in October from 2.79 million in September, the labor agency said.

“The weaker economy is leaving its mark on the labor market,” the agency’s head, Frank-Juergen Weise, said in a statement. “But overall, the labor market is still robust and in a good shape.”

Until last month, Germany’s jobless rate was at its lowest level since reunification. Consumer confidence will rise to a five-year high in November, market research company GfK predicted last week.

Merkel’s Support

Falling unemployment figures have until now bolstered German Chancellor Angela Merkel, who is less than one year out from a national election.

Support for Merkel’s Christian Democratic Union and its Bavarian sister party rose to a three-year high of 39 percent in a poll by ZDF television published on Oct. 26. Support for the opposition Social Democrats slipped to 29 percent.

The German economy will expand 0.9 percent this year, according to the International Monetary Fund. It predicts a 0.4 percent contraction for the euro region.

Economic confidence in the euro area fell for an eighth month to the lowest in more than three years in October, the European Commission in Brussels said today. An index of executive and consumer sentiment in the 17-nation euro area dropped to 84.5, the lowest since August 2009, from 85.2 in September.

Spain’s economy, the euro region’s fourth-largest, contracted for a fifth straight quarter in the three months through September, with gross domestic product dropping 0.3 percent, another report showed today.

Debt Crisis

Fiat SpA, the Italian carmaker that controls Chrysler Group LLC, today forecast a prolonged downturn in the European market after reporting that its third-quarter operating loss in Europe widened 61 percent from a year earlier.

“The crisis hasn’t been solved yet,” said David Milleker, chief economist at Union Investment GmbH in Frankfurt. German unemployment “might continue to increase in the months to come,” he said.

German growth slowed to 0.3 percent in the second quarter from 0.5 percent in the first. While the economy probably expanded in the third quarter, there are “increasing signs” that it will stagnate or see “a slight decrease in gross domestic product in the final quarter of the year,” the Bundesbank said on Oct. 22.

Deutsche Lufthansa AG, Europe’s second-biggest airline, is trying to save 1.5 billion euros ($1.9 billion) through a reorganization that will eliminate 3,500 administration jobs and as many as 1,000 catering posts over the next two years.

Forecasts Cut

The ECB and the IMF have both lowered their forecasts for the euro-area economy as governments cut spending to plug budget gaps. At least five of the 17 nations using the single currency are already in recession.

Germany sells about 40 percent of its exports in the bloc and 60 percent within the wider European Union.

Some German companies are compensating for weaker demand in Europe through sales to faster growing markets.

Linde AG, the industrial gases maker that’s set to overtake Air Liquide SA to become the world’s biggest, yesterday reported third-quarter profit that beat analyst estimates after its purchase of Lincare Holdings Inc. boosted sales in the U.S.

Volkswagen AG, Europe’s largest carmaker, said on Oct. 15 it is expanding its lineup as it pursues its goal of becoming the world’s largest automaker by 2018. Growth in China and the U.S. helped the company increase deliveries 9.7 percent to 6.71 million vehicles in the first nine months of 2012.

Bank of Japan

In Asia, the Bank of Japan expanded its asset-purchase program for the second time in two months. The fund will increase by 11 trillion yen ($138 billion) to 66 trillion yen while a separate credit loan program will stay at 25 trillion yen, the bank said in Tokyo today, acting hours after data showed the biggest decline in industrial output since last year’s earthquake. The BOJ will also offer unlimited loans to banks to boost credit demand.

ECB President Mario Draghi’s plan to buy governments bonds to contain the debt crisis has also boosted investor confidence. Germany’s benchmark DAX share index has rallied more than 12 percent since July 25.

“Even though the ECB’s announcement of its intention to buy government bonds has helped sentiment, there is reason for concern,” said Christian Lips, an economist at NordLB in Hanover. “The outlook for growth in Germany isn’t great and unemployment will continue to climb.”

(See TOP CRIS for more on Europe’s debt crisis.)
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