Germany’s jobless rate drops to record low as economy booms

Germany’s unemployment rate fell to a record low as the number of people out of work slid for a sixth month, signaling that Europe’s largest economy is continuing to boom despite a slight softening in business confidence.

The jobless rate was 5.5% in December, and the previous month’s rate was revised down to the same level, the Federal Labour Agency in Nuremberg said on Wednesday.

The number of unemployed fell by 29,000 last month, more than twice the median estimate in a Bloomberg survey of economists.

Germany has been enjoying a strong economic run supported by domestic spending and solid global trade, with Purchasing Managers’ Indexes on Tuesday showing factory activity for the country and the euro area jumping to records in December.

At the same time, business optimism has slipped from an all-time high as corporate executives fret over production constraints such as finding skilled workers that may start to lift their costs.

“People are not afraid to spend money because unemployment is so low and that boosts domestic demand,” said Jens Kramer, an economist at NordLB in Hanover. “It’s something of a miracle that wage growth was so moderate after we effectively had full employment for two years in Germany. We should eventually see pressure for higher wages this year.”

The number of people out of work dropped by 20,000 in western Germany and 8,000 in the east of the country, cutting the total number of jobless to 2.4 million.

Despite the robust outlook, the nation is facing the same struggle as the rest of the euro area in generating sustained inflation.

Bundesbank President Jens Weidmann, who has repeatedly called for the European Central Bank (ECB) to set an end-date for its crisis-era stimulus measures, said last month that he’s confident the picture in Germany will soon change.

“We expect that the increased capacity utilisation and regionally appearing bottlenecks in some labour markets will lead to somewhat higher wage pressure,” he told reporters on December 18. Nascent pressures elsewhere in the bloc mean that the ECB is “therefore on track toward our definition of price stability.”

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