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By Bloomberg

German unemployment unexpectedly rose for a second month in July while price growth slowed, signaling that uncertainty over the euro’s future is damping economic activity.

Joblessness increased a seasonally-adjusted 9,000 to 2.8 million, the Federal Labor Agency in Nuremberg said on Thursday. Economists had predicted a drop of 5,000. Inflation rose 0.2 percent from a year earlier, less than economists forecast, the Federal Statistics Office in Wiesbaden said in a separate report.

The labor market’s weakness this month could be a first sign that regional spillovers are affecting Europe’s economic powerhouse. Even so, business confidence rebounded in July after a euro-area deal granted Greece talks toward a third bailout, preventing for now a default or potential exit from the currency union.

“We see employers increasing hours for existing workers rather than hiring more in the quarters ahead, consistent with modest wage growth,” Jennifer McKeown, an economist at Capital Economics Ltd. in London, wrote in a client note ahead of the inflation report. “With the economic recovery set to be slow, we expect German inflation to remain very subdued.”

Prices in Europe’s largest economy grew 0.2 percent from the previous year, the slowest pace in five months. A European Union-harmonized measure of inflation showed a 0.1 percent increase over a year ago, unchanged from June.

Strong Orders

The European Central Bank, which aims to keep inflation at just below 2 percent, said on Thursday its asset-purchase programs were proceeding “smoothly” and would return price growth to its goal if fully implemented. Inflation in the currency bloc was at 0.2 percent in July, according to a Bloomberg survey. That report is due on Friday at 11 a.m. in Luxembourg.

The Bundesbank, in its July monthly bulletin, said that “strong” increases in factory orders during April and May suggest acceleration in the economy in coming months.

The jobless rate in the 19-nation euro area probably fell to 11 percent in June from 11.1 percent the previous month, according to a separate Bloomberg survey.

The July increase is mostly a consequence of “temporary unemployment while young people search for jobs,” the Labor Agency said in its report. “In the summer months they finish their occupational or academic training and then look for a position.”

Germany’s June jobless data was revised to show a gain of 1,000. Nonetheless, the unemployment rate remained at 6.4 percent, the lowest level since reunification.

The labor market “remains the showcase model of the strong German economy,” said Carsten Brzeski, chief economist at ING Diba AG in Frankfurt. “Despite the small increase in non- seasonally adjusted terms, this labor market report is impressive.”