More jobs in Europe, the story of 2006?

Employment in Europe appears to be rising in earnest following years of sluggish economic growth when companies either cut staff or shunned new recruits to safeguard profits.

Whether the good news for jobseekers and cash-strapped governments proves short-lived remains to be seen, as many analysts doubt economic activity can maintain the racy pace of the first half of 2006.

However, official reports on job creation in Germany and France suggest that several straight months of decline in unemployment rates are not solely due to statistical quirks or people being struck off job-seeker registers.

Many economists underestimated the strength of Europe's rise in economic output in the second quarter of 2006, the best in six years. Some are wary of missing the boat if this improves the labor market significantly.

The eurozone is now creating jobs at a faster rates than the U.S., says Holger Schmieding, a European economist at Bank of America who reckons employment is rising by 200,000 a month across the 12-country euro zone.

He argues this could create a virtuous circle where job growth starts to help GDP growth.

HELP WANTED

There is no catch-all summary of Europe's jobs market along the lines of U.S. payrolls reports, Schmieding noted.

While U.S. payrolls drive financial markets on the first Friday of each month, hardly anybody ever pays attention to employment in the eurozone, the second-largest economy in the world. That's a pity, he says.

France's statistics office said on Friday 51,900 jobs were created between April 1 and June 30 outside the public and agricultural sectors. The 0.3 percent increase was the best quarterly performance since July-September 2001.

Germany reported a 0.28 percent jobs increase over the same period after zero growth in the first quarter, although that was partly due to short-term hires while hosting the soccer World Cup.

Philippe Waechter of Natexis Asset Management says the near terms looks good even if recent job-creation data pales beside that during the boom in Internet start-ups and high-tech stocks.

We're still far off the figures we had at the end of the 1990s but recent data on the French economy suggests we could see a rise in employment in the months ahead, he says.

In the late 1990s, quarterly job creation frequently topped 100,000 in France and more than 560,000 jobs were created there in 2000.

Germany did not ride the wave to the same extent and it lost jobs in net terms in 2005, a year when the government reformed welfare and labor laws to make it easier to hire and fire.

Germany and France account for close to half of total eurozone unemployment of close to 11.5 million, but the jobless figures are starting to look better.

Germany's seasonally adjusted unemployment rate dropped for a fourth straight month in July to its lowest rate in nearly two years. The 84,000 fall was far bigger than economists forecast.

Other seasonally adjusted data showed 48,000 jobs created in July, a fifth straight month of increase, after 67,000 in June.

Some jobs were temporary, for the World Cup, but there may be more to it, analysts think.

The services sector and construction are the primary gainers of late, while jobs in manufacturing, where competition with the likes of China is more acute, remain vulnerable in Europe.

More people in jobs means more tax income for governments, easing budget strains. It could also produce the feelgood factor judged essential to lifting German consumer spending, and economic recovery over the longer term.

German Chancellor Angela Merkel recently welcomed a rise in the number of jobs raising tax income for welfare.

But some economists worry that her plan to raise VAT sales tax in January will restrain spending and thwart the feelgood factor generated by ebbing unemployment.

According to EU statistics office Eurostat figures based on International Labor Organization standards, Germany's jobless rate dipped to 8.2 percent by end-June from 9.5 percent at the start of 2006.

France's dropped to 8.7 from 9.2 percent, and the overall eurozone jobless rate dipped to 7.8 percent from 8.3 percent.

The figures may differ from national readings but indicate trends.

WAGE INFLATION SUBDUED

Bank of America's Schmieding notes the pickup in the jobs market has not so far led to major wage inflation.

France on Friday reported second-quarter wage growth of 2.9 percent year-on-year, slightly higher than previous years but not alarming, he says, adding that German wage inflation may hit 2.5 percent by next year.

That probably meant eurozone labor cost inflation rising to 3 percent from 2.2 percent, which he said was still modest by international standards.