German Retail Sales Unexpectedly Dropped in September (

By Frances Robinson

Oct. 30 (Bloomberg) -- Retail sales in Germany, Europe’s largest economy, unexpectedly fell for a second month in September after companies shortened working hours, leaving consumers with less money to spend.

Sales, adjusted for inflation and seasonal swings, slipped 0.5 percent from August, when they dropped 1.8 percent, the Federal Statistics Office in Wiesbaden said today. Economists expected a gain of 1 percent, according to the median of 23 estimates in a Bloomberg News survey. From a year earlier, sales declined 3.9 percent.

Average wages in Germany fell 1.2 percent from a year earlier in the second quarter after companies reduced working hours to cut costs during the economic slump. The government is spending 85 billion euros ($126 billion) on measures to haul the country out of its worst recession since World War II.

“Although the extensive use of the short-time work scheme strongly helps to stabilize employment, employees have to accept lower incomes,” said Alexander Koch, an economist at UniCredit Group in Munich. “The German economy is growing again, but private households are still likely to face a consumer recession.”

Germany’s HDE retail industry association expects sales to decline 2 percent in nominal terms this year. Arcandor AG, the insolvent German retailer, said yesterday that its Quelle mail- order unit will hold a closing-down sale next month.

‘Recovery Signs’

Still, the government this month raised its economic forecasts, predicting growth of 1.2 percent in 2010 after a contraction of 5 percent this year.

“Recovery signs are now very clear all over Europe, especially in Germany, and this is a direct consequence of the government measures,” said Oscar Bernal, an economist at ING Groep NV in Brussels. “Prices are still under pressure, adding to the purchasing power of households, and we’re a bit more optimistic on the labor market.”

Consumer prices haven’t risen on an annual basis in Germany since April and unemployment unexpectedly dropped for a fourth month in October, aided by government programs that include incentives for companies to retain staff. Bundesbank President Axel Weber said on Oct. 3 that Germany’s economy probably expanded around 0.75 percent in the third quarter from the second, when it grew 0.3 percent.

“The labor market’s benefited from companies putting people on shorter working hours as opposed to firing them,” said Andreas Scheuerle, an economist at Dekabank in Frankfurt. “But the labor market will get worse, and that should affect retail sales.”

To contact the reporter on this story: Frances Robinson in Frankfurt at frobinson6@bloomberg.net