WRAPUP 1-German jobs data exposes weak spot of euro economy
June 07, 2002 09:08 AM ET Email this article Printer friendly version
By Nick Tattersall
BERLIN, June 7 (Reuters) - German unemployment saw its sharpest rise in five years on Friday, helping explain why consumer spending in the euro zone remains weak and threatens its economic recovery.
Joblessness in the euro zone's largest economy surged 60,000 in May to 4.042 million -- more bad news after an unexpected April rise in regional unemployment earlier in the week.
"It was beginning to look as if (German unemployment) had turned the corner, but this figure has more than reversed that," said Robert Prior-Wandesforde, an economist at HSBC in London.
"It bodes very badly for consumer spending...but it is consistent with stronger productivity growth to come."
The euro zone jobless rate unexpectedly registered its first increase since January on Tuesday, climbing to 8.3 percent in April from 8.2 percent the previous month.
In contrast, U.S. jobs data on Friday showed a better than expected outcome with May non-farm payrolls up 41,000 and the jobless rate falling to 5.8 percent from 6.0 percent in April.
Economists had expected the jobless rate to edge up to 6.1 percent in May, the highest in 7-1/2 years, with 58,000 new jobs created.
The performance on both sides of the Atlantic performance underlines the differences between the U.S. and European recoveries.
Weak consumption meant that Germany, and the entire euro zone, was only saved from recession by export earnings in the first quarter of the year and until employment levels pick up, there is not much hope for higher spending.
On the other hand, industrial production is rebounding -- as signalled by a climb in the OECD leading indicator for the euro zone in April, which was also released on Friday.
Because the linkage between the two is investment and job creation, a lag in unemployment makes a difference to the pace with which spending picks up and euro zone recovery takes off.
RECOVERY DOUBTS
This is clouded by uncertainty, a fact underscored on Thursday by the European central bank when it left interest rates on hold for the last 7-1/2 months.
Analysts and government officials say they expect an economic recovery to filter through to the German jobs market in the second half of this year.
A German government spokesman noted that German April orders data released on Thursday had come in above expectations and gave cause for optimism.
"It shows that the recovery is gaining stability and will reach the labour market, although not at the pace the government would like," government spokesman Uwe-Karsten Heye told a news conference.
Evidence of gradual recovery has been slowly accumulating with the April reading of the OECD "early warning" indicator on economic prospects rising for the sixth month in a row for Europe, Japan and the industrialised world overall. But it fell for the first time in as many months for the United States.
The Organisation for Economic Co-operation and Development said its leading indicator index for the 12-nation euro currency zone rose 0.5 points to 113.3 in April from 112.8 in March.
Economists consider the OECD indicator as one of the most reliable of a wide range of leading indicators used to spot likely changes in economic growth prospects at an early stage.
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