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Tuesday, April 1, 2008

German Retail Sales February 2008

Retail sales in Germany had their biggest month on month fall in almost a year in February as faster inflation eroded consumer spending power. Sales, adjusted for inflation and seasonal swings, fell 1.6 percent from January, the Federal Statistics Office in Wiesbaden said today. That's the biggest drop since May 2007.

According to provisional results of the Federal Statistical Office, in February 2008turnover in the German retail trade was in money terms 2.4% larger and in real inflation adjusted terms 0.3% smaller than in February 2007. There was even one extra shopping day in February 2008 - 25 - as compared with February 2007 - 24.

When adjusted for calendar and seasonal variations, February retailturn over was in nominal terms 0.7% and in real terms 1.6% smaller than that achieved in January.

Taking the last two months together and comparing with January-February 2007 retail turnover was up in nominal terms by 2.4% and exactly equal in inflation adjusted real terms to the turnover achieved in the first two months of 2007. If we look at the chart for the seasonally adjusted monthly index we can see that the general trend since March/April of 2007 has been steadily downwards, which is just another way of saying that the German economy is now almost completely dependent on exports (and the capital investment necessary to be able to produce them) for obtaining economic growth. So it seems a little hopeless to imagine that at this point a recovery in domestic consumer demand is going to sustain the economy should exports start to flag.

German policy makers who may have been relying on consumers to help fuel growth as a U.S.-led global economic slowdown may ultimately threaten exports, will find these results very disappointing. While consumer and business confidence all rose last month and as falling unemployment should in theory help support consumption, inflation running close to the fastest pace in 12 years is surely starting to impact on consumer spending power.

German consumer prices, as measured by the harmonized European Union method, rose 3.2 percent in March. European inflation hit 3.5 percent in March, the highest level in almost 16 years, the European Union's statistics office in Luxembourg said yesterday.

If we look at the PMI chart (the PMI gives us a slightly different, and more "as it happens", reading on retail sales, we should note that even though retail sales have been hardly spectacular in the first three months of this year, they are also hardly collapsing, and the March reading suggests they will hold up at least one more month. This reading is consistent with a lot of other data we are getting at the moment, and does suggest that even though consumption will not drive growth, at least it mirrors the underlying "push" which is still being sustained in the exports and the industrial production areas.

Sales of food, drink and tobacco fell 4.1 percent from a year earlier, sales at supermarkets and department stores declined 4 percent and specialty food-store sales declined 5.9 percent. In February, non-food retail sales gained 2.8 percent from a year earlier, with the biggest increase -- 7.4 percent -- in sales of clothes, shoes, textiles and leather goods in specialty stores. Sales of appliances and furniture rose 2.8 percent, the statistics office said.

GfK AG, the Nuremberg-based consumer research company, said March 27 that if inflation doesn't abate, German consumer-spending growth may fall short of its 1.5 percent forecast.

``Should the inflation rate remain significantly above 2 percent this year and therefore stay higher than initially assumed, then private consumption will only increase by up to 1 percent this year,''

Even so, GFKs consumer confidence index rose for the first time in three months in April as continuing employemnt growth appeared to havve boosted households' willingness to spend. Germans' income expectations and a gauge measuring their optimism about the economic outlook rose, according to the index.

The March jobless rate fell to 7.8 percent, the lowest level since August 1992, the Federal Labor Agency said today.

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