German unemployment unexpectedly fell in December on a seasonally adjusted basis, the first drop since July, the Labour Office said today.
The news bolstered hopes that domestic consumption could lift growth in Europe's biggest economy.
The number of people out of work fell by 15,000 to 2.965 million, the biggest decrease in two years, data showed, compared to a consensus of no change in a Reuters poll.
The jobless rate held steady at 6.9%, close to its lowest level since Germany reunified more than two decades ago.
Labour Office chief Frank-Juergen Weise expressed optimism about the coming year. "The economic expectations are good," he said, adding that early indicators pointed to a stable labour market in the next few months.
Berlin is relying on German consumers to support economic growth this year as the traditionally export-driven economy suffers from a slowdown in some emerging markets and fragile demand from the euro zone.
The Labour Office also said that the unemployment rate for the whole of 2013 dropped 0.1 percentage point to 6.9%.
Germany's jobless rate has held steady at just below 7% for more than two years and is the envy of crisis-hit euro zone partners such as Spain and Greece where more than one in four people is officially out of work.
The figures are good news for conservative Chancellor Angela Merkel who formed a "grand coalition" government with the Social Democrats (SPD) at the end of last year, which plans to increase public spending and introduce a minimum wage.
However, it is not plain sailing for everyone. Several companies have announced job cuts in the last few weeks.
Airbus announced about 5,800 jobs cut mainly in its defence and space businesses as part of restructuring last month and sources have told Reuters that Deutsche Telekom plans to cut 4,000 jobs at its IT services business.
Koenig & Bauer, the world's second-biggest maker of printing presses, also said last month it planned to lose up to 1,500 jobs.
Some of Germany's economic institutes have also warned that plans by Merkel's new government to introduce a minimum wage may cause long-term job losses.