Increases are normal in January, a winter month following the Christmas season when construction activity is muted, and a reason why economists refer to seasonally adjusted figures that showed a decline to 7.4 percent of the workforce.

That was better than an analyst forecast established by Dow Jones Newswires, which anticipated a stable adjusted rate of 7.5 percent, and was the lowest rate since German reunification in late 1990, ING senior economist Carsten Brzeski noted.

“Today’s numbers confirm the strength of the German labour market. Looking ahead, the good-news show will continue,” he said.

But Brzeski told AFP the improvement was due in large part to low-wage jobs and said: “If you really want to have domestic demand pick up, you need higher wages.”

In unadjusted terms, which serve as the basis for public debate, the unemployment rate rose to 7.9 percent, with the total number of people out of work climbing by 331,000 to 3.347 million, the national labour office said.

In December, the unadjusted rate stood at 7.2 percent.

Labour office director Frank-Jürgen Weise said in a statement that “demand for labour has increased again” and added: “If we exclude seasonal factors, the labour market trend is positive.”

Economy Minister Rainer Brüderle said that the “figures are encouraging for the months to come,” when the government expects the overall number to fall below three million.

IHS Global Insight economist Timo Klein agreed that “the economic recovery appears to have sufficient inherent momentum to lead to continually declining unemployment during 2011.”

Germany’s economy pulled sharply out of its last recession to notch up record post-reunification growth of 3.6 percent in 2010, and the government forecasts a further expansion of 2.3 percent this year.

Brzeski underscored parallels with late 2007 and early 2008, and forecast that the outcome of the current round of German wage negotiations “will be higher than for a long while.”

“If you want to get a broadening of the recovery, I think you need to accept higher wages in Germany,” he said.

Capital Economics economist Ben May said the latest unemployment reading “provides hope that a strengthening labour market will prevent household spending from faltering this year in response to Germany’s fiscal squeeze.”

AFP/ka