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Economy in Brief

by Bob Brusca German Retail Sales Slow Sharply and Disappoint July 12, 2007

… but retail sales will nonetheless fuel strong spending in Q2.

Retail sales rose sharply in April but fell even more sharply in May. On the face of it, Q2 spending does not seem to be very strong. But the kicker for growth lurks in the weakness for German retail sales in January when the new VAT tax was imposed. Because of that drop the Q1 average for spending was depressed. As a result, if April and May levels of spending stay close to the level for March, spending will be strong in Q2. Right now real retail sales ex auto sales are rising at a 5.1% annual rate over their Q1 level. Real retail sales would have to fall by about 2% in June to cut Q2 sales growth to zero – an unlikely development after the sharp fall in sales in May.

The chart on the left shows the path of German real ex-auto retail sales, 6x-month and 12-month growth rates drops sharply after January and HAVE NOT RECOVERED. But the quarterly calculation groups months together in a way that will make Q2 spending strong. Yet that will have no positive connotations for the rest of the year or for the trend for retailing. Remember that real retail sales fell by 9.1% in Q1 over Q4. So, even a rise of 5% in Q2 would not really be that large.

German Real and Nominal Retail Sales
Nominal May-07 Apr-07 Mar-07 3-MO 6-MO 12-MO YrAgo
Retail Ex Auto -2.6% 2.1% 0.1% -1.8% -2.0% -1.7% 7.1%
Motor Vehicle and Parts 6.1% -2.7% 3.3% 29.8% -22.8% -2.2% 12.5%
Food Beverages & Tobacco -3.1% 2.6% 0.1% -1.8% 1.5% -0.8% 4.5%
Clothing footwear -9.4% 6.5% 0.1% -12.9% -0.5% -1.6% 11.1%
Retail Ex Auto -2.5% 1.6% 0.4% -2.2% -2.7% -2.4% 6.6%
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