German Labor Market Strengthens as Robust Economy Fuels Hiring

(Bloomberg) -- German unemployment continued to decline in July in a sign of confidence in Europe's largest economy.

The number of people out of a job dropped by a seasonally adjusted 9,000 to 2.537 million, data from the Federal Labor Agency in Nuremberg showed on Tuesday. The median estimate in a Bloomberg survey was for a decline of 5,000. The jobless rate remained at 5.7 percent, the lowest level since the country's reunification.

High spirits among German companies and steadily declining unemployment suggest the economy's strong performance at the start of the year will spill into the second half. The Bundesbank has said that manufacturing is turning into a driving force of growth while favorable labor-market conditions and consumer sentiment are likely to boost private spending.

“The news from the labor market are positive,” labor agency head Detlef Scheele said in a statement. “Employment increased strongly once again and demand by companies for new workers continues to rise at a high level.”

Joblessness fell by about 5,000 in west Germany and 4,000 in the eastern part of the country.

Despite an increasingly tight labor market, wage growth in Germany remains moderate -- a dilemma the European Central Bank says damps inflation. As unions begin regrouping later this year to start crafting their demands for the next round of pay negotiations, the Bundesbank expects compensation to improve.

German consumer prices rose an annual 1.5 percent in July, according to a report on Friday.

--With assistance from Kristian Siedenburg and Andre Tartar

To contact the reporters on this story: Carolynn Look in Frankfurt at clook4@bloomberg.net, Alessandro Speciale in Frankfurt at aspeciale@bloomberg.net.

To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Jana Randow, Zoe Schneeweiss