Release: Unemployment Change m/m (Oct)
Forecast: -6K, Previous: 10K
Date/Time: 11/30/11 at 3:55AM ET (08:55 GMT)
Release: Retail Sales m/m (Oct)
Forecast: 0.1% Previous: 0.3%
Date/Time: 11/30/11 at 2:00AM ET (07:00 GMT)
Labor Market - Will German Labor Market Reverse?
Data from Germany, to be released in the Wednesday European trading session, is expected to show the number of unemployed in Germany dropping by 6K in October. That would be a partial reversal of the 10K new unemployed in September, which was the first positive reading from unemployment change in nine months and only the second month in which unemployment increased in the last 17 months.
Here's what that looks like visually, with the German unemployment rate falling steadily throughout the last two years. In fact the jobless rate is at decades lows at 6.5% current. The question to ask now is will slower economic growth within the Germany and the wider euro zone start to reverse some of these gains in the German labor market? We will have our latest sample of evidence with the October release.
Retail Sales Give Us Insight into German Spending Amid Crisis
Also in the European session we will get data on retail sales from Germany. that will help fill the gap for us in terms of how the positive situation in the labor market is being counteract-acted by the negativity of the sovereign debt crisis. The expectation is for a tepid 0.1% increase in retail sales for the month of October, following a downwardly revised 0.3% increase in September.
The hope for Germany had been that low unemployment rate and increased incomes would lead to an increase in personal consumption and consumer spending which would help Germany's growth to be less dependent on its export sector.
We know now that with the euro zone economy entering a mild recession on the back of the European sovereign debt crisis, and the potential for even further deterioration economic conditions, confidence will be in short supply in the euro area unless there's a resolution.
Here's a look at consumer confidence as measured by the ZEW Economic Sentiment index:
And business confidence as measures by the IFO Business Climate index:
We see pretty clear deterioration in both, a sign of the concern businesses and consumers have about their economic prospects.
Gauging the Germany Economy and Leanings of ECB
We therefore at this point are trying to gauge the fallout from the sovereign debt crisis, and look at the data to see if the deterioration in economic conditions within the largest economy in the euro zone - that of Germany - is worse than expected. As conditions in Germany weaken, we want to also see if the labor market begins to loosen, with the unemployment rate increasing, after having tightened over the last two years.
Better-than-expected readings on retail sales and on the labor market front would help bolster the fundamental picture for Germany and thereby the euro zone, but other data we have seen already points to weakness including our PMI reports from last week.
The pace of growth in Germany is going to be very important for the ECB to consider as it thinks about what to do next with interest rates. The ECB cut rates by 25 basis points in its November meeting to 1.25%. Better data from Germany gives the ECB more leeway to keep rates where they are in order to maintain price stability, but if economic conditions in Germany and in the wider euro zone falter then we're certainly likely to see the ECB respond by lowering rates.