Europe Retail Sales Decline for 15th Month, PMI Shows
European retail sales fell for a 15th month in August as rising unemployment damped consumer spending, the Bloomberg purchasing managers index showed.
The measure of euro-area sales declined to 47.1 from 47.3 in July when adjusted for seasonal swings. It has remained below the 50 mark, indicating contraction, since June of last year. The index is based on a survey of more than 1,000 executives compiled for Bloomberg LP by Markit Economics.
Households across the region are holding back on spending after the jobless rate increased to a 10-year high of 9.4 percent as companies fired workers and cut costs to survive the worst recession in six decades. While the European Commission projects unemployment will reach 11.5 percent in 2010, consumer confidence gained more than economists forecast in July on signs the economic slump is easing.
“Euro-area unemployment has further to rise and that should weigh on household spending while improving confidence is still fragile as well,” said Colin Ellis, an economist at Daiwa Securities SMBC Europe Ltd. “The question remains what will act as a spur to growth once the fiscal stimulus measures abate.”
Germany and France, the euro region’s largest economies, unexpectedly returned to growth in the second quarter after their governments pledged billions of euros to fight the recession, including subsidies for consumers who scrap an old car and buy a new one. The incentives are to expire at year end.
Steepest Decline
The retail-sales gauge for France showed a slower revenue drop in August, while in Germany, Europe’s biggest economy, the pace of decline was little changed, according to today’s report. Italy, the euro area’s third-largest economy, recorded the steepest decline of the three surveyed countries.
Retailers eliminated more jobs this month to cope with falling revenue and narrowing profit margins, which “remained under severe downward pressure in August,” Markit said in the report. A gauge of gross margins fell to 41.2 from 41.6 in July, the survey showed.
Bulgari SpA, the world’s third-largest jeweler, last month reported a second straight quarterly loss as the Rome-based company struggled to sell its Assioma watches around the world. Puma AG, Europe’s second-largest sporting-goods maker, on Aug. 7 said profit fell 16 percent because of increased discounting.
The global recession has eroded household and company demand for credit in Europe and made banks more reluctant to lend. Loans to the private sector increased 0.6 percent from a year earlier in July, the slowest annual growth since records began in 1991, the European Central Bank said today. On the month, loans fell 0.4 percent, the biggest drop ever recorded.
‘Cautiously Optimistic’
While retail companies continued to miss their sales targets this month, led by clothing and shoe stores, they were “cautiously optimistic” about the one-month sales outlook for the first time since May, Markit said.
European stocks were higher as better-than-projected earnings at France’s Credit Agricole SA overshadowed concern that the U.S. economy shrank at a faster pace than previously estimated. The Dow Jones Stoxx 600 Index was up 0.2 percent at 9:26 a.m. in London. The measure has gained 50 percent since March 9 on signs the worst of the global slump is over.
The European economy barely contracted in the second quarter as Germany and France showed expansion for the first time in five quarters. Euro-area gross domestic product fell 0.1 percent from the first quarter, when it plunged 2.5 percent, the biggest drop since at least 1995.
Record Low
The economy will return to growth in mid-2010 after contracting about 4.6 percent this year, according to ECB forecasts. The central bank has cut its benchmark interest rate to a record low of 1 percent and started buying covered bonds to stimulate bank lending.
“We see some signs confirming that the real economy is starting to get out of the period of freefall,” ECB President Jean-Claude Trichet said last week. This “does not mean at all that we do not have a very bumpy road ahead of us.”