German Retail Sales Fall as Consumers Stay Home

In May, the volatile indicator had rebounded slightly, but falling consumer confidence suggests that the biggest European economy will continue to see weaker activity in its shopping districts, according to the data released Friday, Aug. 1, by the German Federal Statistics Office.

The figure was calculated from seasonally corrected data provided by seven of Germany's 16 states. It came after a survey by the GfK institute found that consumer confidence has hit a five-year low as oil-fuelled inflation wiped out gains in employment and wages.

"Turnover in retail trade in Germany in June 2008 was in nominal terms 1.2 percent and in real terms 3.9 percent smaller than that in the corresponding month of the previous year," the statistics office said.

Robbed of purchasing power

At UniCredit Markets, analyst Andreas Rees said "German consumers are now increasingly sending out the SOS signal."

Commerzbank counterpart Matthias Rubisch added that "soaring energy and food prices are robbing households of their purchasing power."

A food retailing sub index fell by 7.0 percent from June 2007, statistics showed, a sign that German consumers were curbing even essential spending.

While recent declines in oil prices might continue, "this does not mean that John Q. Public will go on a shopping spree in the months to come," Rees said.

The retail chain Hertie said Thursday that it was filing for insolvency and Rubisch commented that for private consumption in general, "the outlook remains bleak."

With gas and electricity prices set to rise sharply in the coming months, "the German consumer simply cannot be a match for declining export and investment activity -- in no way," Rees said.

Other Europeans buying more, saving less

Meanwhile in the 15-member euro zone growth of disposable income slowed in the first quarter of 2008, the European Central Bank said Friday.

Disposable income grew by 3.4 percent in the first three months of 2008, down from 4.6 percent in the last quarter of 2007, an ECB statement said.

Unlike in Germany, consumption growth in the euro zone rose to 4.1 percent from 3.8 percent, and the savings rate fell sharply to minus 2.8 percent from 12.6 percent, the ECB said.

But the central bank added that the figures could have changed in recent months after euro zone inflation hit a record 4.1 percent last month and plunging consumer confidence put a damper on spending.