Job optimism boosts German consumer confidence

By GEIR MOULSON Associated Press Writer

BERLIN (AP) - German consumer confidence has jumped as economic expectations spiked to their highest level in three years and unemployment continues to fall, according to a survey released Tuesday.

The GfK research institute said its forward-looking confidence indicator for October stood at 4.9 points. That was up from 4.3 in September, which was revised up from the initial reading of 4.1.

GfK said Germans' economic expectations were at their brightest for about three years in September. An index measuring those expectations rose by 6.9 points over the previous month to 53.5.

"The decisive factor in the strong sentiment among consumers is the extremely positive development of the employment market," GfK said.

Germany's unemployment rate stood at 7.6 percent in August, which is more or less where it was before the collapse of U.S. investment bank Lehman Brothers two years ago.

Germany, Europe's biggest economy, has enjoyed strong export-led growth this year. Its massive 2.2 percent growth in the second quarter over the previous three-month period has helped the 16-nation eurozone outperform the U.S.

But even at the height of the crisis, a government-subsidized short-time work plan that allowed employers to reduce production without cutting employees kept the jobless rate in check. It peaked at 8.7 percent in February this year.

Though growth is expected to moderate over the rest of the year, GfK said "the overall trend will remain positive."

Thanks to the economic upturn, consumers' expectations for their personal income this month hit their highest level since March 2001, the group said. That indicator rose by 9.2 points to 45.2, while inflation that has hovered around 1 percent for months is also increasing purchasing power.

Germans' propensity to buy also increased in September, rising by 2.8 points to 30.7 - leaving the indicator well above its longtime average of zero.

GfK said German private consumption may beat its forecast this year if this month's trends continue, and "growth of up to 0.5 percent rather than stagnation is a realistic possibility."

Consumer spending has long been a weak point in Germany's economic performance.

However, "after almost a lost decade for German consumption, caused by flat real wages, high unemployment and precautionary saving, a trend reversal is materializing," said Carsten Brzeski, an economist at ING in Brussels.

"German unemployment has been dropping for a long time and wages are set to increase," he added.

The bright outlook from GfK follows a survey last week that showed German business confidence edging up to its highest level in over three years in September.