Drop of 1.8% in German retail sales

GERMAN retail sales fell 1.8% in November, the biggest drop in eight months, evidence that an export-led economic recovery in Europe’s largest economy has yet to bolster consumer spending.

Economists had expected sales to drop 0.2% in the month, the median of 11 forecasts in a survey showed. Sales were unchanged in October from the month before. Sales declined 4.8% from a year ago, the Federal Statistics Office said in a fax issued in Wiesbaden.

Consumer confidence was unchanged last month, and retail associations representing companies including KarstadtQuelle AG say tax cuts by Chancellor Gerhard Schroeder may not be enough to fuel spending. Private consumption shrank in the third quarter when exports pulled the economy out of recession.

German consumer spending probably stayed muted in December as shoppers kept a rein on spending amid concern about the prospects for Schroeder’s tax cut proposals. In the end, he caved in to opposition demands and agreed to reduce the tax relief by almost half, to €8.9 billion.

Retail sales in November and December may have dropped as much as 4% from the previous year, said the HDE group, which represents about 100,000 retailers, last month.

The HDE expects industry sales to grow as little as 0.5% this year, spokesman Hubertus Pellengahr said in a televised interview with Bloomberg News in December. The tax compromise “surely didn’t cut it” for retailers, he said.

As domestic spending struggles to recover, Germany is relying on exports to revive growth. So far, rising demand abroad looks set to shore up the economy and offset the stronger euro.

Rainer Guntermann, an economist at Dresdner Kleinwort Wasserstein in Frankfurt said: “the effect from the tax cut is not as strong as had been hoped.”

Sales at department store-style outlets dropped 3.7% in November from the previous month, the statistics office said. Textile, clothing and shoe sales fell 8.5% and mail order sales declined 10.7%.

Shares of KarstadtQuelle AG, Germany’s biggest department store operator, rose about a fifth last year, as markets recovered from a seven-year low in March. That’s lagging exporters such as Siemens AG, which added 58% in the period. The benchmark DAX index advanced 37%.

The outlook for manufacturing in the dozen nations sharing the euro improved in December, as executives grew more optimistic, purchasing managers’ indexes showed on Friday.

The Bundesbank, with a different method of adjusting the figures for seasonal influences and the number of working days, said retail sales fell 1.1% in November and declined 1.6% compared with a year earlier.