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Euro-Region April Retail Sales Fall for Fourth Month (Update4)

Euro-Region April Retail Sales Fall for Fourth Month

May 9 (Bloomberg) -- Retail sales in the 12 nations sharing the euro fell for a fourth month in April as oil prices above $50 per barrel and rising unemployment hurt consumer spending, the Bloomberg purchasing managers index showed today.

An index based on a survey of more than 1,000 retail executives compiled for Bloomberg LP by NTC Research Ltd. reached 48.7, adjusted for seasonal swings, after 48.5 in March. A reading below 50 signals a contraction.

European consumers are showing little inclination to spend more, hurting earnings prospects at retailers including Metro AG, as higher energy costs boost gasoline prices and companies keep a rein on hiring. With a 27 percent increase in oil prices this year further damping demand, some economists say the European Central Bank will be forced to shore up growth by cutting interest rates.

``Private consumption is still pretty meager,'' said Dirk Schumacher, an economist at Goldman, Sachs & Co. in Frankfurt, who expects the ECB to cut its benchmark lending rate by half a percentage point in the third quarter. ``I don't think we're going to see huge positive surprises because the labor market hasn't turned and in some cases it's deteriorated.''

Stocks declined today. The Dow Jones Euro Stoxx Index fell 0.3 percent to 274.05 points at 1:42 p.m. in Frankfurt. The euro was worth $1.2828 against the dollar, up from $1.2815 before the report's release.

Slowing Growth

Metro, the world's third-largest retailer, said on May 3 first-quarter profit fell because of lackluster demand in its domestic German market. L'Oreal SA, the world's largest cosmetics maker, on April 21 posted slower-than-expected sales growth in the first quarter because of a drop in western Europe.

``Consumers' willingness to buy remained low,'' NTC said in its report today. This month's report reflects ``widespread uncertainty over when consumer spending will recover.''

The euro-region's economy is slowing as global demand, which powered exports last year, shows signs of cooling. The U.S. economy, the world's largest, will probably grow at a 3.2 percent annual pace in the second quarter, down from a forecast of 3.7 percent made just a month ago, according to the median of 64 economists' projections in a Bloomberg survey. In Japan, the world's second-largest economy, industrial production dropped for a second month in March.

``Growth this year is at a global level lower than in the previous year and certainly the price of oil has played a role,'' said ECB President Jean-Claude Trichet in Basel, Switzerland today after chairing a meeting of central bankers from the Group of Ten countries.

`Delayed Recovery'

The slowdown is affecting Europe. German industrial production fell for a second month in March, the Economy and Labor Ministry in Berlin said today. Across the euro region as a whole, manufacturing shrank last month for the first time in almost two years and in March the unemployment rate climbed to a seven-month high of 8.9 percent.

``I think we'll be seeing a delayed recovery this year,'' ECB council member Nicholas Garganas said in an interview in Athens on May 6. Growth ``should be relatively modest.''

Politicians including Italian Prime Minister Silvio Berlusconi are demanding the ECB does more to boost growth. Berlusconi said May 7 the ECB ``needs to wake up'' and German Economy and Labor Minister Wolfgang Clement said the bank's monetary policy isn't doing anything for the German economy.

Rate Expectations

The ECB isn't listening. The Frankfurt-based central bank on May 4 kept its benchmark lending rate at 2 percent, where it's been since June 2003, and Trichet said on May 3 the ECB is ``certainly not preparing for any rate cut.''

Investors have almost abandoned expectations that Trichet will raise borrowing costs this year.

The rate on December Euribor interest-rate futures was at 2.19 percent at 12:17 p.m. from 2.45 percent a month ago. The contracts settle to the three-month inter-bank lending rate for the euro, which has averaged 15 basis points more than the ECB's key rate since the euro's introduction in 1999.

Italian and French retail sales declined last month, with revenue in Italy dropping the most since November, NTC reported. Sales in Germany, Europe's largest economy, climbed. The latest euro-region data available from the European Union's statistics office, Eurostat, are for March and showed sales rising 0.3 percent from February.

Unlike the Eurostat figures, the Bloomberg PMI includes automobile sales in its survey of companies and is the first indicator of sales for April.

Job Concerns

As the growth outlook dims, retailers are cutting their sales projections. An index measuring sales expectations for next month versus targets dropped to 51.3 in April compared with 57.6 in the previous month, the lowest level of optimism this year.

``We expect no major change in the German economy,'' said Hans-Joachim Koerber, Metro's chief executive officer. ``What we need more is for customers to look more at the future.''

Rising unemployment is clouding prospects for the timing of any rebound in consumer spending. Retailers cut jobs at the fastest pace since November last month as they try to trim costs, with an index of employment in the industry dropping to 48.3 from 49.1 in March, NTC said.

International Business Machines Corp., the world's biggest computer-services company, said May 5 it will cut as many as 13,000 jobs, mainly in Europe, and Lanxess AG, a German chemicals maker, said April 26 it may cut as many as 1,200 jobs.

``Prospects for retailing confidence aren't looking good,'' said Sylvain Broyer, an economist at IXIS CIB in Frankfurt. ``We won't see a real improvement until 2006.''

Retailers still aren't cutting costs fast enough to shore up profitability as higher oil prices boost costs and discounters including Aldi Group lure shoppers. An index measuring gross margins dropped to 42.4, the lowest in six months, in April from 43.6 in March, according to NTC.

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


To contact the reporter on this story:
John Fraher in Berlin at [e-mail].


LINK: http://quote.bloomberg.com/apps/news?pid=10000085&sid=abKADWHcOhfo&refer=news_index