3 Charts to Characterise the German Labor Market

Employment continues to rise in Germany in April. However, the pace could  change in coming months, particularly with regard to the IFO survey and its correlation with the job annual change.
It is necessary to separate short-term and medium term issues.
In the short-term, two trends are noteworthy
In May the number of unemployed increased by 24,000. This is in contrast to the most recent developments as shown in the graph. Over a year, however, the number of unemployed continues to shrink. It is possible that in May, a random factor (holidays, … ) could have played negatively.
germany-2014-may-unemploymentThe idea of randomness for May data comes from the reading of the PMI/Markit survey for May. At a 3-month horizon, the signal on the job market remains largely positive. The consistency between the employment component in the Markit survey and the effective employment trends suggests that employment is expected to remain on an upward trend in the coming months.
Germany-2014-May-pmi-Employ-EmployHowever, medium and long-term, the picture of the labor market is less positive.
Looking at the IFO survey we can wonder about the medium-term employment trend. The IFO index has a less bullish pace since the beginning of the year. The index is near its highs and the downward reversal suggest a probable inflection on the dynamics of employment in the coming months. This reflects a change in companies’ expectations. This can be seen in the ZEW and IFO surveys. In this case, for an entrepreneur, and if the downward trend persist, it is neither necessary nor desirable to increase jobs. Look at the graph linking the IFO and employment: the IFO reversal with a six month lead is seen as a trigger for a new dynamic on the labor market. There will be no sudden or strong reversal of the labor market but a shift is to come.
This is why the observation of surveys’ expectations will be important in coming months. He will give a simple and relevant indication for the German labor market.

1 thought on “3 Charts to Characterise the German Labor Market

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