A seasonally adjusted index of sales in the dozen nations sharing the euro fell to 49.7 from 52.2 in December, led by France, according to a survey for Bloomberg LP by NTC Research Ltd. A reading below 50 signals a decline. Sales fell from a year earlier for a 21st month.
European consumers, whose spending accounts for two thirds of the 9 trillion euro ($11.9 billion) economy, curbed purchases at retailers such as Casino Guichard-Perrachon SA even as discounting squeezed profits. Unemployment in the euro region rose in December for the first time in more than two years.
``The sales fall is a little disappointing,'' said Michael Penn, an economist at Merrill Lynch & Co. in London. ``Better sentiment among consumers isn't yet translating into higher spending, though that may happen in coming months.''
Manufacturing orders in Germany, Europe's largest economy, fell for the first time in four months in December, led by a drop in demand from abroad, a report showed today. Orders declined 1.6 percent from November, when they gained 1.3 percent, the government said.
The euro traded at $1.1987 at 1:55 p.m. in Frankfurt, down from $1.2039 at Friday's close.
'Surprising' Consumers
Retailers cut prices last month, trimming profit, to tempt consumers deterred in part by rising energy costs. Oil has risen 18 percent since Dec. 19, reaching $69.20 a barrel on Jan. 23. In France, a gallon of gasoline jumped 4.2 percent in January to the equivalent of $5.72. That's up from $5.33 in November.
``January had been off to a good start and then it slowed down,'' said Claude Primot, director of a Casino supermarket in the southern French city of Nice, in an interview. Consumers' behavior ``is very surprising, it's one day yes, one day no.''
The index charting gross margins fell to 40, matching the lowest since NTC started surveying in January 2004, from 42.4, the Henley-on-Thames, Oxford-based researcher said. ``The main reason for falling profits was further price discounts,'' NTC said in a statement.
French Decline
In France, the second-largest economy in the euro region, the index slumped to 46.2 from 51.5. Consumer spending in France slid in December, recording the first decline for the month since 1998. French consumer confidence fell to a record in November amid job cuts at some of the country's largest companies. Ecully, France-based SEB SA plans to eliminate about 1,000 jobs over two years in the country to compete with rivals making goods in Asia.
Kesa Electricals Plc, Europe's third-largest consumer- electronics retailer, said last month that annual profit will be at the lower end of analysts' estimates after sales declines worsened at its French BUT outlets.
The index for Germany dropped to 50.4 from 51.7, the first drop since September. Consumers in Europe's largest economy are opting for low-price retailers including Hennes & Mauritz AB, where the average selling price is between 10 euros and 12 euros.
``Germany has presented a sluggish market for a number of years now, and during that time we have done very well,'' said Leif Persson, H&M's chief financial officer, in a Jan. 24 interview. ``We think we will also continue to do very well in that market.''
Discounts
The Italian index slipped to 53.2 from 53.7, declining for the third month. Italian consumer confidence fell at the fastest pace in six months in January.
``We'll keep using price discounts to lure customers,'' said Luca Rossetto, chief executive officer of Rozzano, Italy-based Upim SpA, one of country's largest department stores. ``I'm worried about confidence among consumers even if we see some encouraging signs in our stores.''
By contrast, U.S. retailers reported better than forecast sales gains in January as a rebound in consumer confidence helped spending. Wal-Mart Stores Inc., the world's largest retailer, said same-store sales rose 4.7 percent, at the high end of its forecast. J.C. Penney Co., Target Corp., Gap Inc., Nordstrom Inc. and Limited Brands Inc. beat analysts' estimates.
The Federal Reserve raised the benchmark lending rate to 4.5 percent on Jan. 31. The European Central Bank left its benchmark interest rate unchanged at 2.25 percent on Feb. 2 as policy makers await further evidence that growth and inflation are picking up.
Trichet
Bets on an interest-rate increase as soon as next month are ``reasonable,'' European Central Bank Jean Claude Trichet said last week in Frankfurt. Europe's economic expansion may quicken driven by exports. Growth in the euro area will accelerate to about 1.9 percent this year from 1.4 percent in 2005, the ECB forecast in December.
Foreign demand is gaining, fueled by the euro's 13 percent decline against the dollar last year, helping companies such as Porsche AG, a German luxury carmaker, which posted a record first- half profit on Jan. 27.
PPR SA Chief Executive Francois-Henri Pinault said on Jan. 26 the retailer should benefit from ``slightly better'' spending in France in 2006. Retailer PPR SA owns the Gucci Group and the Printemps department store.
``I'm a bit surprised by the fall, as the conditions are in place for a moderate recovery in the eurozone economy,'' Lorenzo Codogno, co-head of European economics at Bank of America in London, in an interview. ``We are still looking for a rate increase in March.''
Investors expect the ECB to increase the rate to 2.5 percent in the first quarter of 2006, futures trading suggests. The implied rate on the three-month contract for March traded at 2.69 percent. The contracts settle to the three-month inter-bank offered rate for the euro, which has averaged 15 basis points more the ECB rate since the currency's launch in 1999.
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.
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