German Unemployment Drops as Euro-Area Inflation Slows

German unemployment fell for the first time in five months in December, signaling increased confidence by the nation’s companies even as pricing power in the euro area remained subdued.

The number of people out of work in Europe’s largest economy decreased by a seasonally adjusted 15,000 to 2.965 million, the Nuremberg-based Federal Labor Agency said today. Euro-area inflation slowed to 0.8 percent, a separate report from the European Union’s statistics office in Luxembourg showed. German stocks and European bonds advanced.

Germany is relying on its home market for growth as the 18-member euro region struggles to sustain a recovery. While the Bundesbank predicts that German gross domestic product will rise “strongly” in the coming months, the European Central Bank has warned that the currency bloc faces a “subdued” outlook for inflation and “weakness” in the economy.

“A robust jobs report for the end of the year provides further support for a strong finish to 2013 from consumer spending,” said Christian Schulz, an economist at Berenberg Bank in London. “Strong labor-market data raises the chances of stronger wage growth in 2014 and thus higher consumption.”

Germany’s Dax stock index rose 0.5 percent to 9,479 at 12:22 p.m. Frankfurt time. Spain’s 10-year bond yield slid 11 basis points to 3.8 percent, the lowest since 2009. The extra yield investors require to hold Spanish and Italian 10-year bonds over similar-maturity German bunds shrank to the narrowest since 2011. The euro was little changed at $1.3645.

ECB Rates

The drop in German unemployment compared with a forecast for a decline of 1,000, according to the median of 28 estimates in a Bloomberg News survey. The number out of work fell by 5,000 in west Germany and 10,000 in the eastern part. The adjusted jobless rate remained unchanged at 6.9 percent.

The nation’s retail sales climbed 1.5 percent in November from the prior month, the Federal Statistics Office in Wiesbaden said today. Sales gained 1.6 percent from a year earlier.

Euro-area inflation slowed from 0.9 percent the prior month and matched the median forecast by economists. It has been below the ECB’s 2 percent ceiling for 11 months. The Frankfurt-based central bank, which cut its benchmark interest rate to a record low of 0.25 percent in November, will leave its main refinancing rate unchanged on Jan. 9, according to a separate Bloomberg survey.

“Today’s figures show that it’s too early for the ECB to become complacent about deflation risks, especially in peripheral countries,” said Peter Vanden Houte, an economist at ING Bank NV in Brussels. “While we believe that for the time being the ECB will keep its monetary policy unchanged, not much is needed to push the central bank into action.”

Foreign Workers

Germany has added more than 230,000 jobs in the past year, in part by incoming foreign workers. Starting this year, citizens from Romania and Bulgaria, two of the poorest European Union countries, are allowed to seek employment in Germany, seven years after joining the EU.

That may lead to an influx of as many as 120,000 people, according to Enzo Weber, an economics professor at the University of Regensburg who also heads two departments at the labor agency’s IAB research institute.

“It will have a good impact on the labor market,” Weber said. “We need these migrants.”

Unemployment in Germany is less than half of that in the single-currency region, where the rate remained at 12.1 percent in November, close to a record high, according to a separate survey of economists. A measure of joblessness comparable with other euro countries stood at 5.2 percent in October, the second-lowest after Austria, while it was 26.7 percent in Spain. Eurostat will release new data tomorrow.

Investor Confidence

Recent reports indicate the pace of Germany’s recovery is quickening. Business confidence as measured by the Ifo institute rose to the highest in 20 months in December, and manufacturing output increased the most in 2 1/2 years in a survey of purchasing managers. ZEW investor confidence in the economy surged to the highest level since 2006.

Volkswagen AG’s Audi unit, the world’s second-biggest maker of luxury cars, plans to spend 22 billion euros ($30 billion) to step up competitiveness in order to overtake Bayerische Motoren Werke AG.

“There are good prospects for the lively domestic economy” to be complemented by a “considerable strengthening in the industry,” the Bundesbank said in its monthly report published Dec. 16.

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