Germans buy more retail goods as labor market robust

BERLIN Thu Mar 28, 2013 6:53am EDT

A man walks past a sign of a labour office in the western German city of Cologne September 4, 2003. REUTERS/Arnd Wiegmann

A man walks past a sign of a labour office in the western German city of Cologne September 4, 2003.

Credit: Reuters/Arnd Wiegmann

BERLIN (Reuters) - Germans are spending more on retail goods as unemployment remains close to a post-reunification low in Europe's largest economy, data showed on Thursday, suggesting private consumption will buoy growth this year as exports weaken.

Labor Office data showed the number of people out of a job increased by 13,000 to 2.935 million in seasonally adjusted terms in March, missing a Reuters consensus forecast for unemployment to fall by 4,000.

But the unemployment rate held steady at 6.9 percent, where it has stood since October 2012. That should work in German Chancellor Angela Merkel's favor as she courts votes ahead of an election in September.

Combined with data released earlier on Thursday showing retail sales rose unexpectedly for a second straight month in February, the unemployment figures bode well for domestic demand, which economic advisers to the German government expect to drive growth in Europe's largest economy this year.

"The small rise (in unemployment) is not dramatic. The hard winter is certainly playing a part," said Thilo Heidrich, an economist at Postbank.

"The Labor market is in robust shape despite the economic lull. An indication for that is that the number of those in employment has increased fairly significantly," he added.

Germany's economy, long resilient to the euro zone crisis, slowed in 2012 and output shrank by 0.6 percent in the fourth quarter. Industrial output stalled and orders fell in January, the latest month for which this data is available.

But economists expect Europe's paymaster to avoid recession and to return to weak growth in the first three months of 2013, which would bode well for jobless figures.

Also, while some big German companies like Commerzbank (CBKG.DE), Deutsche Telekom (DTEGn.DE) and Air Berlin (AB1.DE) are cutting jobs, thousands of workers are benefitting from strong wage hikes. Regional public sector employees have achieved a 5.6 percent raise over two years and some iron and steel workers have secured a 3 percent hike over 15 months.

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"If the economy over here revives further in the course of this year we could see a decline in unemployment over the medium term," said Commerzbank's Bernd Weidensteiner, though he added that firms may be more cautious about hiring new employees at the moment due to uncertainty over Cyprus and Italy.

The unadjusted jobless total, which is closeLaborched in Germany, remained above the 3 million mark for a third consecutive month but Labor Office chief Frank-Juergen Weise said the Labor market remained solid and was largely unaffected by the economic conditions of recent months.

Sentiment indicators have generally been positive so far this year, suggesting the economy is picking up in the first quarter, though the Ifo business climate index dipped in March.

A survey earlier this week showed consumer morale holding steady heading into April as Germans became more upbeat about the economy. Their desire to shop held at a good level due to the stable Labor market, easing inflation and the low interest rates being offered by banks.

Christian Schulz, senior economist at Berenberg Bank, said the retail sales data for January and February pointed to a quick rebound in the first quarter after a dismal end to 2012.

Year-on-year retail sales were down by 2.2 percent, however, though that was partly due to there being one less sales day in February 2013 than in 2012.

Germany's solid economy is the envy of euro zone peers like Spain, where around one in four people is without a job and retail sales fell for a 32nd straight month by 8.0 percent year-on-year in February.

(Additional reporting by Madeline Chambers; Editing by Catherine Evans)