Germany's Surprising Job Growth
What is perhaps most surprising is the fact that despite the decline in GDP by 1.6% in Germany compared to Q4 2007, employment actually rose by 1% in the year to the first quarter. Compare that to the United States that saw a much smaller 0.2% GDP decline in the year to the fourth quarter, but still saw employment drop by more than 2%. But how could job growth be much stronger in Germany if Germany has a steeper economic contraction? There are four possible explanations for this.
1) GDP is actually stronger in Germany and/or weaker in the United States than these very preliminary numbers suggest, something which might be evident in coming revisions.
2) Employment is actually much weaker in Germany and/or stronger in the United States than these very preliminary numbers suggest, something which might be evident in coming revisions.
3) Germany has had more beneficial changes in its terms of trade, meaning that its official headline numbers underestimate its strength relative to the United States.
4) United States has stronger productivity growth than Germany.
Personally, I think it is a combination of these factors, or at least factors 1,3 and 4 (Though it can't be ruled out that German job growth is overestimated).
Many recent numbers suggest that the U.S. fourth quarter GDP was in fact much weaker than the preliminary estimate, and so will be revised down, beginning in the next U.S. release and probably continuing in the annual revisions. Historically, later revisions have also had a tendency to revise down U.S. GDP, while European revisions have if anything had the tendency to revise up GDP.
No terms of trade numbers are available for Germany yet, but the imputed inflation rate for GDP does look suspiciously high (over 2%, when the CPI has increased only about 1.5%), suggesting a terms of trade gain for Germany. By contrast, the U.S. terms of trade didn't change for the period as a whole.
And the great real wage gain for U.S. workers was probably not just reflecting falling corporate profits but also rising productivity.