By Michael Nienaber
BERLIN (Reuters) - Germany's jobless total dropped more than expected in March and unemployment hit a record low, adding impetus to a labor market that had already become the linchpin of a consumer-led upswing.
Household spending has turned into the main source of growth in Europe's biggest economy, propelled by rising employment, inflation-busting pay hikes and low borrowing costs.
Federal Labour Office data on Thursday showed the seasonally adjusted jobless number fell by 19,000 to 2.373 million, more than the 15,000 forecast in a Reuters poll.
Separately, regional data pointed to a rise in the national inflation rate in March, though leaving it still well below the European Central Bank's target of just under 2 percent for the euro zone, suggesting price pressures remain muted.
Unemployment dropped to 5.3 percent last month from 5.4 percent in February, the lowest since Germany reunified in 1990.
"The positive development of the labor market continued in March," Labour Office head Detlef Scheele said. He said companies created more jobs with full social benefits and were continuing to look for more staff.
The data showed that Germany's prolonged upswing is now also pushing down the once stubbornly high number of long-term unemployed, which fell by 9 percent on the year to 845,000.
Opposition parties have accused Chancellor Angela Merkel of neglecting the long-term unemployed at a time when German firms are struggling with unprecedented skill shortages.
In the coalition deal signed this month, the center-left Social Democrats (SPD) persuaded Merkel's conservatives to help integrate the long-term unemployed by creating 150,000 subsidized jobs at a cost of 4 billion euros ($4.9 billion).
Seasonally adjusted employment in Germany as measured by the International Labour Organisation climbed to a record 44.59 million in February, separate Federal Statistics Office data showed on Thursday.
TRADE THREAT
The rock-solid labor market is likely to further boost consumer confidence and household spending in Europe's biggest economy, where domestic demand has taken over from exports as the main growth driver.
The government has forecast a 2.4 percent expansion for this year, which would be the fastest rate since 2011.
Consumer sentiment rose unexpectedly heading into April, according to a GfK survey released on Wednesday, as shoppers became more upbeat about their income and were more willing to spend.
"Full order books and the strong growth of the global economy make it unlikely that the job boom will come to an end in spring," KfW chief economist Joerg Zeuner said - though the threat of a trade dispute with the United States had made firms far less optimistic about future business.
"The losers of a spiral of protectionism between the U.S. and the EU would be consumers and employees on both sides of the Atlantic," Zeuner said.
Household spending has also been helped by moderate inflation, which has broadly undercut average pay settlements to leave employees with more disposable income.
Thursday's regional inflation readings, which are not harmonized to compare with other euro zone countries, will feed into a nationwide number due at 1200 GMT that a Reuters poll has forecast at 1.6 percent, compared with 1.2 percent in February.
($1 = 0.8130 euros)