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European September unemployment remains at 5-year low

European unemployment remained at a five-year low in September, adding to evidence Europe's economy can weather higher interest rates.

The jobless rate was 7.8% for a fifth month, the European statistics office in Luxembourg said today, matching the lowest since the launch of the euro. Economists had expected a September rate of 7.8%, according to a Bloomberg survey. “Employment growth has recovered and employment expectations remain favorable,” European Central Bank President Jean-Claude Trichet said yesterday as he signaled the ECB will increase borrowing costs again in December to keep the fastest economic growth in six years from fanning inflation. The ECB is concerned economic growth will lead to higher wage demands as a decline in oil prices increases the spending power of companies and consumers. Oil is down nearly 25% from its July record of $78.40 a barrel, trading today at $57.85 a barrel. Amid “the ongoing improvement in labor markets,” Trichet said, “stronger than currently expected wage developments pose substantial upward risks to price stability.” To counter inflation, the ECB has raised its benchmark interest rate five times in the last year, to 3.25% from a six-decade low of 2%.

The central bank expects inflation to accelerate again after dropping below its target of just under 2% in September and October. “The momentum of the economic expansion is expected to have continued in the H2 of this year,” Trichet said. The euro was little changed against the dollar, trading at $1.2770 at 11:30 a.m. in Brussels. European manufacturing growth accelerated more than expected in October, while business confidence in Germany and France unexpectedly increased last month as lower oil prices and exports to Asia brightened the economic outlook. The euro region is expected to grow around 2.5% this year, the fastest since 2000, the European Commission forecasts. “All the signs are clearly pointing to strong, robust growth in the euro area,” said Ilaria Spinelli, an economist at Fideuram Investimenti Sgr in Milan. “That growth looks like it can be sustained going forward and businesses are feeling the positive effects.” Germany, Europe's biggest economy, reported yesterday that its unemployment rate fell to a two-year low in October as manufacturers boosted hiring to meet growing demand for exports.

Advanced Micro Devices Inc., the world's second-largest computer- processor maker, “will continue to hire more people” for its production site in Dresden, CFO Robert Rivet said in an interview last week. European governments are overhauling labor laws to encourage hiring. French Prime Minister Dominique de Villepin last year introduced financial incentives for the unemployed to take jobs in industries facing labor shortages such as catering. Italy's jobless rate is at a 14-year low, partly because of changes to employment regulations that have made it easier to hire part-time and temporary workers. The euro area's unemployment rate has now been at 7.8% since May, the statistics office said today. That jobless rate was last seen in July 2001. “Unemployment is fairly crucial in terms of the outlook for consumer spending, which has shown some weaknesses", said Stephen Webster, an economist at 4Cast Ltd. in London.

“After years of stagnating employment, the situation is that the upturn in the euro-zone economy is clearly having an impact on unemployment.” The ECB's Trichet indicated yesterday he is optimistic a slowdown in the US will have a limited effect on growth in the euro region, saying "the direct and indirect impact on us is not something which is too substantial.'' Manufacturing in the US, the world's largest economy, expanded in October at the slowest pace in more than three years, a report showed yesterday. The International Monetary Fund yesterday cut its 2007 growth forecast for the US, citing a housing slump and weaker consumer spending. The US economy will grow 2.6% next year, the IMF now forecasts, down from the 2.9% expansion projected in September. The Washington-based lender, which kept its US forecast for this year unchanged at 3.4%, expects the euro area's growth rate to fall to 2.0% in 2007. The unemployment data are frequently revised. The statistics office today revised the figures for May, June and August. (Bloomberg)