German unemployment rose unexpectedly in May for the first time in more than two years, reinforcing concerns Europe's biggest economy is slowing significantly after a dynamic first quarter.
The seasonally adjusted jobless total increased by 4,000 on the month to 3.310 million, after a decline of 4,000 in April, and the jobless rate held at 7.9 per cent for a third straight month, Federal Labour Office data showed.
It was the first increase since March 2006, defying economist forecasts for a decline of 20,000 and pushing the euro down to a nine-day low against the dollar.
"After the strong first quarter we expect an economic cooling over the course of the year and a clear slowing of the momentum in the labour market," said Mario Jung, an economist at BHF-Bank.
German unemployment scaled a post-war high above 5 million in March 2005, but has been falling steadily since then, helped by solid economic growth and a surge in hiring by firms to meet robust demand.
The pickup on the labour market raised hopes German consumers would step up spending, but a surge in food and energy costs has stoked inflation and spooked shoppers.
A monthly survey by the GfK research group showed morale among German consumers is likely to worsen in June, hurt by concerns about price rises and the economic outlook.
Economists have said Germany's 1.5 per cent quarterly growth rate in the January-March period may prove a "flash in the pan" and Economy Minister Michael Glos has warned of the threat from high oil prices, the strong euro and financial market turmoil.
Economists said part of the reason for May's jobless gain was a technicality linked to the mild winter and government measures to keep seasonal workers in employment.
This kept the jobless total lower in the first quarter, dampened the decrease in April and led to the rise in May, as seasonal adjustment techniques were unable to take such movements into account.
"From a fundamental point of view, we think the message is mixed," said Andreas Rees at Unicredit. "Given strong investment activity in the first quarter, a further reduction in unemployment in the months ahead is very likely."