German Retail Sales Rise In October

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German retail sales rose in October, after two months of decline, data showed Wednesday.

The Federal Statistical Office announced that the retail sales in real terms increased a seasonally and calender adjusted 0.5% month-on-month in October, compared to the 0.2% decline in the preceding month. Economists had expected an increase of 0.4%.

Year-on-year, retail sales decreased 1.7% in October, slower than the 3.2% fall in September. Economists were looking for a decline of 1.9%. This was the third year-on-year decline in a row. For the January to October period, retail sales dropped 1.8% compared to the same period of the previous year.

Economists' Reaction:

ING senior economist Carsten Brzeski noted that Christmas sales could give another boost to retail sales as anecdotal evidence suggested that the first weekend started relatively well.

"Traditionally, the real boost will only come in the last two weekends before Christmas. However, looking beyond Christmas sales, the outlook seems rather bleak."

"Consumer confidence has weakened in recent months and increasing unemployment could dent the last spark of hope for a spending spree. Still, high pent-up demand after years of wage moderation and one of the highest personal savings rate of all Eurozone countries make private consumption still an untapped source of future growth."

"With the ongoing recovery in the export and industrial sector, restrengthening private consumption could make the fourth quarter a real good one."

Commerzbank analyst Simon Junker noted that the latest increase was a counter-movement to the sharp slumps in the months before when the scrapping premium for cars had most likely had an adverse effect on retail. In the medium perspective, however, retail should continue its downtrend, the economist said.

"Despite the increase on September, sales in October were below the average for the third quarter." "Retail trade, which does not include car sales, is likely to have been negatively affected by the scrapping premium."

"Although rising interest and business income from, tax reliefs and the low inflation rate will support private consumption in the first half of 2010, the situation on the labour market is likely to deteriorate noticeably in the winter half year and will outweigh the positive effects," the economist said. "Private consumption should continue to fall until mid next year."

"Consequently, the outlook also remains poor for the retail sector, where sales will generally maintain their downtrend."

(Market News Provided by RTTNews)