European Retail Sales Dropped for a Fourth Month in September

By Jurjen van de Pol

Sept. 29 (Bloomberg) -- European retail sales fell for a fourth month in September as higher consumer prices and the worsening credit squeeze sapped confidence, the Bloomberg purchasing managers index showed.

The measure of sales in the euro area fell to 46.2 from 47.7 in August. A reading below 50 indicates contraction. The index is based on a survey of more than 1,000 executives compiled for Bloomberg News by Markit Economics.

Prices rose the most in 16 years in July, driven higher by food and energy costs, leaving consumers with less money to spend. At the same time, banks have become more reluctant to lend as the U.S. financial turmoil spreads, undermining global growth and pushing down confidence among executives and consumers for a third month in August.

``The current uncertainty about the economy makes people want to save rather than spend,'' said Nick Kounis, an economist at Fortis in Amsterdam. ``The banking crisis in the U.S. is a fresh threat and could dampen consumer confidence.''

Retail sales dropped in Germany and Italy, two of the three largest economies in the 15-nation euro region. French shops sold more for a third month. European retailers are firing workers at the fastest pace in almost three years, the report showed.

Fiat SpA, Italy's largest manufacturer, suffered a 23 percent decline in Italian car sales in August. Gruppo Coin SpA, Italy's largest department-store chain, said second-quarter profit fell 75 percent after consumer confidence sagged to near a 15-year low.

Slower Growth

The Italian government last week cut its 2008 economic growth forecast to 0.1 percent, the slowest pace in five years, and less than a June estimate of 0.5 percent. Unemployment in Italy probably rose for a fifth quarter in the three months through June, a report will show today, according to the medium forecast of 15 economists in a Bloomberg News survey.

``We expect consumer spending to contract again in the third quarter, reflecting the impact of a weaker labor market and of the July oil-price peak,'' said Paolo Pizzoli, an economist at ING Wholesale Banking in Milan.

Today's report showed that retailers' gross margins continued to fall as shops needed to offer greater discounts to attract customers, Markit Economics said. Inflation in the euro zone reached 3.8 percent in August, almost twice the European Central Bank's 2 percent target.

Shedding Workers

The declining profit margins and weak economic conditions are forcing European retailers to cut staff. German department store owner Arcandor AG announced plans to eliminate at least a fifth of jobs at the headquarters of its Karstadt unit, Germany's largest department-store chain, and lowered its profit forecast for 2009.

Retail sales in Europe's largest economy fell for the fourth month. More than a third of German retailers didn't meet sales targets for September and some companies saw consumer demand falling faster than expected, the report showed.

The German economy contracted 0.5 percent in the second quarter and may not recover in the third as investments falter and consumer spending slumps. The threat of job losses may further undermine consumer sentiment and spending.

French retailers seem to be coping with the global slowdown as sales expanded in September and consumer confidence in Europe's second-largest economy unexpectedly rose for the first time in more than a year as the retreat in fuel prices left people with more to spend. Crude oil prices have fallen almost 30 percent since the peak of $147.27 a barrel on July 11.

Gucci Sales

PPR SA's, the owner of luxury clothes maker Gucci Group, last week confirmed sales and profit will increase this year. Chief Executive Officer Francois-Henri Pinault said a slowdown of ``one or two years'' is in store following four years of luxury-goods expansion.

The gains may be short lived as the spreading credit crunch threatens to further choke economic growth.

``The strength of the global financial crisis will have consequences on economic growth and employment in France,'' President Nicolas Sarkozy told ministers on Sept. 26 at the weekly Cabinet meeting in Paris.

For the Bloomberg retail indicator, Markit Economics recruited a panel of companies in Germany, France and Italy, which together make up around 80 percent of total euro-area retail sales by value. The panel includes large chain retailers as well as smaller stores.

To contact the reporter on this story: Jurjen van de Pol in Amsterdam jvandepol@bloomberg.net