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October 31, 2013
Recently, the labour market has been marked by rising unemployment alongside a sustained increase in overall employment. The surprisingly strong increase in unemployment in September was reported by some newspapers as a "stalling German jobs miracle". The labour market upswing is still intact. Leading indicators suggest that the increase in employment is likely to accelerate again towards year-end. We expect the number of persons in employment to rise by 230,000 to a record high of 42.3 million in 2014. In October the IAB released a new leading indicator for the short-term development of the labour market. In contrast to other leading indicators of the labour market the IAB index aims to forecast the change in the number of unemployed instead of the number of employed. The new index is a good predictor of the monthly changes in the number of unemployed, however, from a growth perspective employment is the more important indicator. The increase in German house prices since 2008 has triggered concerns about the beginning of a housing boom. Our analysis of OECD house price cycles reveals that the current German upswing has been moderate so far compared to past German upswings and is one of the least pronounced among the cycles in OECD countries. We expect that real house prices continue to increase in Germany in the coming years, but that the formation of a bubble is rather unlikely thanks to no sign of excess in other relevant factors (e.g. labour market and credit growth). [more]