European June Retail Sales Decline for 13th Month, PMI Shows

European retail sales declined in June for a 13th month as the region’s worst recession in more than half a century and rising unemployment curbed household spending, the Bloomberg purchasing managers index showed.

The measure of euro-region sales rose to 47.5 from 47.1 in May when adjusted for seasonal swings. It has stayed below the 50 mark, which signals contraction, since June of last year. The index is based on a survey of more than 1,000 executives compiled for Bloomberg LP by Markit Economics.

Governments across the continent are spending billions of euros trying to prop up incomes and revive economic growth. There are signals that the contraction may be ending, and easing inflation is boosting households’ spending power. Still unemployment is rising, making consumers hesitant to sped.

“The outlook for the European retail sector is going to remain bleak for sometime, particular given rising unemployment and slow wage growth which we expect in the next six months,” said Colin Ellis, European economist at Daiwa Securities in London. “What the euro area really needs is for domestic demand to pick up the baton of growth.”

Retail sales in Germany, Europe’s largest economy, declined faster than in the previous month, dropping to 46 from 46.3 in May, Markit said. Store owners in France and Italy saw revenue decline, although the rate of contraction eased.

The auto sector led the decline in sales this month, Markit said. “A waning effect of government scrapping incentives caused the annual rate of decline to gather pace for a second month.”

Car Incentives

European states including Germany and Italy introduced premiums for consumers willing to trade in old cars for new models.

Michelin & Cie., the world’s second-largest tiremaker, plans to eliminate 2,900 French jobs as part of a reorganization to focus on higher-margin tires. Carmaker Volkswagen AG’s management board member Hans Dieter Poetsch told investors this week the global car market’s 2008 sales level won’t be reached again until 2011 “at the earliest.”

The European Central Bank expects the euro-area economy to shrink about 4.6 percent this year before returning to growth by the middle of 2010. Europe lost a record 1.22 million jobs in the first quarter as companies cut spending to survive the recession.

As rising unemployment curbs consumer demand, companies are under pressure to lower prices to sell their products, squeezing profit margins as retailers use discounts to lure customers. Employment in the sector contracted for the fifteenth month in a row.

Targets Missed

While the retail sales decline eased in June, retailers again missed their sales objectives, today’s report showed. Retail companies, led by Germany, remained pessimistic about their sales expectations for next month, with this sub-index declining to 49.8 from 52.1.

The ECB is concentrating its efforts on lubricating the banking system, which accounts for about three quarters of company financing in the region. The central bank has cut interest rates to the lowest on record and will next month start buying 60 billion euros ($85 billion) of covered bonds to help free up credit.

French store owners are strongly confident they will meet next month’s sales targets, the survey showed. French consumer confidence rose in June for a fourth consecutive month to the highest since March last year in a further sign the recession may be easing.

“There are encouraging signs that the crisis may be easing,” Finance Minister Christine Lagarde said in an interview with LCI television last week. The economy is “stabilizing in terms of growth and unemployment,” she said

By Jurjen van de Pol