German Retail Sales, Unemployment Fall

German retail sales and unemployment fell in the fourth quarter and January, respectively, official data showed on Thursday.

German retail sales fell 1.8 percent in the fourth quarter of 2007, indicating household spending was a drag on overall economic growth.

Germans' retail habits are key to the performance of the overall economy as consumer spending accounts for more than half of gross domestic product (GDP).

Bundesbank data showed that retail sales including cars and at petrol stations rose 2.2 percent on the month in December, but economists said this was not enough to boost a poor fourth quarter.

"Consumer expenditures will weigh heavily on GDP growth at year-end 2007," said Andreas Rees at Unicredit, who said the possibility of a consumer recession could not be excluded.

Retail sales fell 8.3 percent in December compared with the same month a year earlier, the Bundesbank data showed.

Economists are looking for consumers to play a bigger role in buoying the economy this year as the impetus from trade weakens due to the U.S. slowdown and the strong euro. But Germans are reluctant to spend, despite falling unemployment and rising take home pay.

"The German consumer is still something of a puzzle. We all hope that the robust state of the labor market and a positive development of wages this year will finally encourage consumers to drop their inhibitions," said Andreas Scheuerle at Dekabank.

The German savings rate hit its highest level since the mid-1990s in the first half of 2007 with households worried about the impact of welfare reforms.

Retail and travel group Arcandor said on Wednesday that sales at its Karstadt department stores had fallen 8.4 percent during the crucial Christmas quarter.

A separate gauge of retail sales for December, excluding vehicles and gas stations, showed a 0.1 percent drop in real terms on the month and a 4.8 percent fall on the year.

The mid-range forecast of 18 economists polled by Reuters last week was for retail sales to rise 1.5 percent on the month and fall by 4.8 percent on the year.

The Statistics Office, which published the figures, said sales in December 2006 had been boosted by consumers making purchases in anticipation of Jan. 1, 2007's three-percentage point increase in value-added tax.

German Unemployment Plumbs 15-Year Low in Jan.

German unemployment fell much more than expected in January, declining for a 22nd consecutive month to its lowest level in 15 years, official data showed on Thursday.

The jobless total fell 89,000 on the month in seasonally adjusted terms, the Federal Labour Office said, easily outstripping the mid-range forecast of a 48,000 fall in a Reuters poll of economists.

January's decline took the adjusted jobless total down to 3.412 million, the lowest since June 1993, while the adjusted jobless rate fell to 8.1 percent, the lowest since December 1992, from 8.3 percent.

"The latest German unemployment figures show that the slowdown elsewhere in the economy has yet to feed through to the labor market," said Jennifer McKeown, an economist at Capital Economics in London.

German unemployment hit a post-war high just above 5 million in March 2005 but has since fallen steadily, helped by solid economic growth as German companies added jobs to meet firm demand.

Positive labor market data have been a blessing for conservative Chancellor Angela Merkel, who made tackling unemployment a main priority when she took office in late 2005.

But a slowdown in the economy and rising wage pressures threaten to slow the labor market recovery.

The strong euro and slowing global growth are expected to crimp German exports, which have been a main driver of the recovery, and economists are looking to domestic household spending to play a greater role in generating growth.

The Economy Ministry last week trimmed its 2008 GDP growth forecast to 1.7 percent from a 2.0 percent October prediction.

Employment growth would probably more than halve this year to 0.7 percent from 1.7 percent in 2007, while the unemployment rate would likely drop to 8.2 percent from 9.0 percent, the ministry predicted.

Andreas Rees at UniCredit in Munich said the large gain in the headline unadjusted jobless total to 3.659 million in January from 3.406 million in December was no reason for concern.

"Looking beyond, the German labor market will remain in good shape in the first half of 2008," he said. "Afterwards, we expect the build-up in new jobs to decrease."