German jobs bonanza keeps economy swinging into spring

By Michael Nienaber

BERLIN (Reuters) - Germany's jobless total dropped more than expected in March and unemployment hit a record low, adding impetus to a labour market that has already become the linchpin of a consumer-led upswing.

Household spending has turned into the main source of growth in Europe's biggest economy, propelled by rising employment, inflation-busting pay hikes and low borrowing costs.

Federal Labour Office data on Thursday showed the seasonally adjusted jobless number fell by 19,000 on the month to 2.373 million, more than the 15,000 forecast in a Reuters poll.

Separately, data from the statistics office showed that inflation accelerated more slowly than expected in March, suggesting that price pressures remain fairly moderate despite the broad-based upswing and unprecedented monetary stimulus.

Unemployment dropped to 5.3 percent last month from 5.4 percent in February, the lowest since Germany reunified in 1990.

Employment as measured by the International Labour Organisation climbed to a record 44.59 million in February, seasonally adjusted data from the Federal Statistics Office showed on Thursday.

"The positive development of the labour market continued in March," Labour Office head Detlef Scheele said. He said companies created more jobs with full social benefits and were continuing to look for more staff.

The data showed that Germany's prolonged upswing is now also pushing down the once stubbornly high number of long-term unemployed, which fell by 9 percent on the year to 845,000.

Opposition parties have accused Chancellor Angela Merkel of neglecting the long-term unemployed at a time when German firms are struggling with unprecedented labour shortages.

In the coalition deal signed this month, the centre-left Social Democrats (SPD) persuaded Merkel's conservatives to help integrate the long-term unemployed by creating 150,000 subsidised jobs at a cost of 4 billion euros ($4.9 billion).

TRADE THREAT

The rock-solid labour market is likely to further boost consumer confidence and household spending in Europe's biggest economy, where domestic demand has taken over from exports as the main growth driver.

The government has forecast a 2.4 percent expansion for this year, which would be the fastest rate since 2011.

Consumer sentiment rose unexpectedly heading into April, according to a GfK survey released on Wednesday, as shoppers became more upbeat about their income and were more willing to spend.

"Full order books and the strong growth of the global economy make it unlikely that the job boom will come to an end in spring," KfW chief economist Joerg Zeuner said - though the threat of a trade dispute with the United States had made firms far less optimistic about future business.

"The losers of a spiral of protectionism between the U.S. and the EU would be consumers and employees on both sides of the Atlantic," Zeuner said.

Household spending has also been helped by moderate inflation, which has broadly undercut average pay settlements to leave employees with more disposable income.

Thursday's preliminary inflation data showed consumer prices, harmonised to make them comparable with data from other European Union countries, rose 1.5 percent year-on-year after an increase of 1.2 percent in the previous month.

The March reading undershot a Reuters consensus forecast of 1.6 percent. Still, it marked the first rise in the headline rate of inflation since November when it stood at 1.8 percent.

The increase was mainly driven by higher food costs and prices for holiday package deals ahead of Easter.

"At first glance, stronger German inflation data looks like a welcome argument for ECB hawks as it seems to confirm their view that prices are finally accelerating," ING-Diba analyst Carsten Brzeski said.

But at a second glance, Brzeski added, the figures provided further evidence that a wage-price-spiral was hardly noticeable even in Germany, which he described as the cyclically most advanced economy of the 19-member bloc.

($1 = 0.8130 euros)

(Reporting by Michael Nienaber; Editing by Madeline Chambers and Alison Williams)