Increase in earnings, yet retail trade continues to struggle

In a surprising turn of events, German retailers have experienced a decline in sales during the second half of the year, with a drop of 1.0% from the previous month, according to official data from the Federal Statistical Office. This unexpected setback comes despite significant increases in both gross incomes and purchasing power among workers.

Economists surveyed by Reuters had predicted a decline of only 0.4%, suggesting that the actual drop was more pronounced than anticipated. The Institute for the World Economy (IfW) attributes this reluctance to spend to rising social security contributions and the increase in additional contributions to statutory health insurance.

The increase in workers' purchasing power, however, is a piece of good news for employees. In the second quarter of the year, German workers' purchasing power increased by 1.9% year-on-year, marking the ninth consecutive quarterly increase. This is considered good news for the German economy, as it indicates a growing ability for consumers to spend.

Despite the increase in purchasing power, there will be no significant increase in real income, according to IfW expert Dominik Groll. Groll states that with the increase in real gross wages, there will be little net income left this year. This could explain the cautious spending behaviour observed among consumers.

The labor market situation is causing citizens to review their spending, as found by GfK market researchers. The retail industry association HDE, however, remains optimistic, expecting sales to increase by 2% for the full year.

The German economy is currently heavily reliant on domestic demand, making the decline in retail sales a cause for concern. Adjusted for inflation, the decline in retail sales was 1.5%, indicating a more substantial drop in spending power.

Malte Lübker, a minimum wage expert at the Institute for Economic and Social Research (WSI) of the Hans-Böckler Foundation, has stated that the current economic situation underscores the need for a balanced approach to economic policy, ensuring that workers can benefit from the growth while also addressing the challenges faced by businesses.

This news serves as a reminder of the complex interplay between economic factors and consumer behaviour, and the need for careful consideration in economic policy-making to ensure sustainable growth and prosperity for all.