The German labour market continues to worsen

In May, German unemployment rose by 33,000, increasing the unemployment figure to 2.963 million. It is the highest May number since 2010. Two years ago, there were 500,000 fewer people unemployed. Seasonally-adjusted unemployment increased by 34,000, keeping the unemployment rate unchanged at 6.3%.

The German labour market has been in a very gradual soft landing since 2022. While the number of unemployed has increased from 2.2 million in May 2022 back to almost 3 million again currently, the number of vacancies has come down since late 2021. The fact that, until recently, employment was at record highs can be explained by migration flows. However, the rise in employment has not been enough to prevent the current private consumption slump. Why? A large part of the recent job growth took place in part-time and low-wage jobs.

Looking ahead, there are tentative signs of a bottoming out of the labour market. Recruitment plans in both industry and services have improved somewhat over the last two months, and several vacancy indicators also point to a tentative end to the downward trend. At the same time, ongoing announcements of potential cost-cutting measures in the automotive and other industries and the continuing increase in the number of bankruptcies are a strong warning against premature celebration.

On a more positive note, the demographic impact on the labour market and labour shortages should prevent a sharp worsening. Still, even if the increase in the number of unemployed is gradual, the risk of an underlying loss in disposable income and broader economic prosperity is high.

Overall, the German labour market's gradual turn continues, and it shows that restoring private consumption to the German economy will not be easy.