European Retail Sales Drop for Ninth Month, Bloomberg PMI Shows

By Jurjen van de Pol

Feb. 26 (Bloomberg) -- European retail sales fell for a ninth month in February as households cut spending amid rising unemployment and tighter credit conditions, the Bloomberg purchasing managers index showed.

The gauge of sales in the euro region dropped to 42.3 from 44 in January. The index is based on a survey of more than 1,000 executives compiled for Bloomberg LP by Markit Economics and a reading below 50 indicates contraction. The index has been below that mark since June.

The euro-zone economy will shrink 1.9 percent this year as the global financial turmoil forces producers to scale back output and rising unemployment curbs household spending, the European Commission forecasts. European Central Bank officials have signaled they may cut interest rates to a record low next week and could consider other options to stimulate the economy.

“There’s a risk that if the rest of the world continues to decline, eventually the increase in unemployment will get the upper hand,” said Peter Vanden Houte, chief European economist at ING Groep NV in Brussels. “That’s the biggest danger” for consumer spending.

Retail sales dropped in the three largest economies in the euro region this month, led by a record decline in France. The slide in Italian sales accelerated, while the pace of contraction in Germany slowed.

This month’s figures are “in contrast to the easing seen over the previous two months” and indicate “a renewed weakening of consumer confidence and high street spending,” Markit said.

‘Lower Visibility’

PPR SA, owner of the Gucci luxury-goods brand and Conforama furniture stores, this month said fourth-quarter sales were almost unchanged and that it plans to cut as many as 1,200 jobs at Conforama and its Fnac unit. Arcandor AG, Germany’s largest department-store owner, on Feb. 12 said it couldn’t give a full- year forecast, citing “lower visibility” because of the financial turmoil.

The number of jobseekers in France rose by the most on record in January as companies braced for the biggest economic contraction since World War II. The European Commission expects the French economy, the euro region’s second-largest, to shrink 1.8 percent this year.

Unemployment in Germany, Europe’s largest economy, increased almost twice as much as forecast in January as the effects of the financial crisis spread. Joblessness across the euro region probably rose to 8.1 percent last month, the highest in more than two years, according to a Bloomberg News survey of economists.

Sales Targets

While retailers missed their sales targets to a greater extent this month, shops expect targets to be “broadly met” in March, helped by revenue from car sales, today’s report said.

European governments are using money-back programs to try to counter a contraction in the region’s auto market that accelerated last month. France’s discount can reach as much as 2,500 euros ($3,185) for buyers of less-polluting new vehicles who scrap older models, while the rebate in Italy is 1,500 euros.

Germany’s upper house of parliament approved a 2,500-euro rebate on Feb. 20 on trade-ins of cars at least nine years old. The February increase in the German retail purchasing managers index, which signaled the slowest rate of contraction since October, largely reflected an upturn in retail sales in the automobile industry, Markit said.

“We notice this seems to work, it is not the case that consumers have completely pulled back,” Vanden Houte said.

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