Spring Boost for Economy

That augured well for consumer spending and growth as a whole in the euro zone's biggest economy in the coming months, analysts said.

According to the monthly jobless statistics compiled by the Federal Labor Office in Nuremberg, the number of people out of work in Germany fell unexpectedly by 24,000 to 4.222 million in February.

And the jobless rate, which measures the total number of people out of work against the working population as a whole, slipped by 0.1 percentage point to 10.1 percent this month, the office calculated.

The decline was unusual for this time of year: unemployment usually rises in the winter months as a result of the bad weather and analysts had been expecting a rise in the February jobless numbers.

Unseasonal drop in unemployment

However, this time, the mild weather and the ongoing economic upturn meant that the jobless queues actually shortened this month, office chief Frank Weise said.

"The favorable developments of the past few months are continuing. The employment trend is gaining momentum," Weise said.

Adjusted for the usual seasonal effects, the German jobless total was down even more sharply, falling by 79,000 to 3.897 million, with the adjusted jobless rate falling to 9.3 percent from 9.5 percent, separate data published by the Bundesbank in Frankfurt showed.

The government hailed the figures. "It's been a long time since unemployment declined in the month of February," said labor minister Franz Müntefering.

"We've had good news on the labor market since spring 2006 and the good news has continued this month. The situation suggests a further improvement. 2007 could be a good year when unemployment falls sharply," Müntefering continued. But he cautioned: "There's no cause for celebration yet. A lot of hard work is still necessary."

Analysts were also pleased by the latest jobless statistics.

"Germany is still enjoying the sweet side of the business cycle," said Bank of America economist Holger Schmieding.

"While inflation remains roughly half a percentage point lower than it was a year ago, despite the VAT hike, unemployment is continuing to fall at an astonishing pace," Schmieding said.

Inflation down despite VAT hike

On Tuesday, the latest consumer price data showed that German inflation stood at 1.6 percent in February, comfortably below the European Central Bank's ceiling of 2.0 percent as falling oil prices took the sting out of a sharp increase in value-added or sales tax (VAT) at the beginning of this year.

HVB economist Alexander Koch calculated that the seasonally adjusted jobless total is now at its lowest level since August 2001.

And the jobless queues had shrunk by 820,000 over the past year, which could only be positive for consumer spending and overall economic growth this year, analysts said.

Optimistic forecasts of sustainable recovery

"German labor markets are booming and this is a very positive omen for sustainable recovery going forwards," said Bear Stearns economist, David Brown.

HVB's Koch predicted that the jobless total would continue to fall in the coming months.

"The business outlook and above all investment plans in the corporate sector signal further good news from the labors market in the coming months," he said. But IXIS-CIB economist Sylvain Broyer was skeptical.

"The improvement in the February data is not real, but mainly reflects a statistical effect due to the absence of winter. The trend in seasonally adjusted unemployment has to reverse in the second quarter," he predicted.