6 July 2004, 11:44  German Unemployment Unexpectedly Fell in June; Rate Unchanged

German unemployment unexpectedly dropped in June for the first time since January, as companies in Europe's biggest economy stemmed the pace of job reductions. The number of job seekers fell a seasonally adjusted 1,000 from May, the Nuremberg-based Federal Labor Agency said. Economists forecast an increase of 10,000, according to the median of 36 estimates in a Bloomberg News survey. The unemployment rate was unchanged at 10.5 percent for a third consecutive month. German companies including Siemens AG are asking employees to work longer rather than taking on new staff. Exports kept Germany's economy growing in the first quarter as unemployment deters consumers from spending. Retail sales dropped 1.7 percent in May, the biggest decline since November.
``Layoffs are tapering off slowly, but there is no dynamism in hiring to be seen,'' said Peter Meister, an economist at ING BHF-Bank AG in Frankfurt, one of four in the Bloomberg survey to forecast a decline in unemployment. ``It is still too early to speak of a turnaround.'' The unemployment rate, adjusted for European Union standards, was unchanged at 9.8 percent, the second-highest among the dozen euro nations after Spain. By contrast, the U.S. economy has added 1.3 million jobs so far this year, the biggest six-month gain in four years. The unemployment rate stayed at 5.6 percent in June, the Labor Department said Friday.
Siemens Agreement
Siemens, Germany's largest electronics company, last month halted plans to shed 2,000 jobs at home and build a new factory in Hungary after labor unions agreed to longer working hours. More than 4,000 employees assembling mobile phones at two German factories will increase weekly working hours to 40 hours from 35 without additional pay under the two-year agreement. Companies dependent on business within Germany are firing workers to boost profitability. KarstadtQuelle AG, Germany's biggest department-store operator, said it will shed 4,000 jobs by 2006. The cuts, almost a 10th of its work force, come as the company faces a third year of dwindling sales. Henkel KGaA, the German maker of Persil detergent, Schwarzkopf hair-care products and Duck tape, today reduced its full-year sales forecast as ``sluggish demand'' in Germany ``spread to other European markets.'' ``The growth impetus isn't sufficient yet,'' said Randolf Rodenstock, chairman of the supervisory board of Rodenstock GmbH, an eyeglasses maker that plans to cut staff at a factory in Bavaria in half to 400. ``What's lacking is a revival at home.''
`Too Weak'
The German economy grew 0.4 percent in the first quarter, less than the 0.6 percent for the whole euro region and the 1 percent achieved in the U.S. Consumer spending, which accounts for more than half of the economy, has yet to revive, leaving exports as the sole pillar of German growth. ``Growth is too weak to prevent unemployment from rising further,'' said Joerg Kraemer, an economist at Invesco Asset Management in Frankfurt. ING BHF-Bank's Meister said the decline in unemployment last month is small compared to last year's drop, suggesting the economic recovery hasn't reached the labor market yet. The number of jobseekers dropped 19,000 in June of last year.
Orders from regions such as the U.S. and Asia are boosting German growth. Plant and machinery orders rose 23 percent in May from a year ago, driven by a jump in export demand, the VDMA plant and machinery industry association said a week ago. Orders from abroad increased 34 percent, domestic orders just 4 percent.
Forecasts Raised
The export boom prompted the IWH economic institute, based in Halle, to raise its forecast for German growth this year to 1.8 percent after a decade-low of 0.4 percent in 2003, the third of the six leading state-funded institutes to predict faster growth last month. The Hamburg-based HWWA institute and the Berlin-based DIW are expected to publish their updated forecasts today. German consumers haven't increased spending for more than a year. Luxury car makers Bayerische Motoren Werke AG, Porsche AG and DaimlerChrysler AG boosted U.S. sales in June while German new car registrations fell 7.3 percent in May from a year ago. German retailers lowered prices in June and expect further reductions in coming months to reduce rising inventories, the Ifo research institute said last week in a breakdown of its business confidence report. Ifo's index fell to a nine-month low in June. ``Domestic demand is weak and that won't change significantly this year,'' Wolfgang Wiegard, chairman of Chancellor Gerhard Schroeder's council of economic advisers, said last week.
Schroeder's Plans
Schroeder, whose Social Democratic Party suffered its worst- ever defeat in a nationwide election last month, is counting on a reduction of non-wage labor costs as well as an easing of regulations on dismissing staff and a tightening of the entitlements to jobless benefits to help reduce unemployment. The government also introduced subsidized self-employment and brought in a program under which privately run agencies take on unemployed people to hire them out as temporary staff. While this cuts the number of registered job seekers, those taken on by the agencies are not necessarily working.
Economics and Labor Minister Wolfgang Clement expects the number of jobseekers to decline in the course of this year as economic growth accelerates. Still, average unemployment this year will probably be higher than last year amid companies' hesitation to hire, according to his deputy Gerd Andres. Industry reports to be published by Clement's ministry later this week will probably show that factory orders were unchanged and industrial production gained 0.2 percent in May, according to Bloomberg News surveys of economists. The number of people out of work in western Germany, which accounts for more than 90 percent of national output, dropped by a seasonally adjusted 6,000 in June, while the number of unemployed in eastern Germany rose 5,000. ///www.bloomberg.com

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