Euro zone Jan retail sales dip y/y, labour costs slow

BRUSSELS, March 13 - Euro zone retail sales fell more than expected year-on-year in January and were revised down sharply for December, data showed on Friday, in another sign of continued economic recession.

The European Union statistics office, Eurostat, also said euro zone labour costs slowed in annual terms in the fourth quarter of last year as wages moderated, pointing to declining purchasing power and falling consumer demand.

Retail sales in the 16-nation euro area inched up 0.1 percent month-on-month but fell 2.2 percent annually, Eurostat said.

Economists polled by Reuters had expected a 0.2 percent monthly increase and a 2.1 percent decline year-on-year.

Eurostat revised down its retail trade figures for December -- when they are traditionally boosted by Christmas -- to minus 0.3 percent month-on-month and minus 2.4 percent year-on-year from previous readings of 0.0 and -1.6 percent respectively.

The figures are another sign the euro zone is sinking deeper into its first ever recession, hit by a global credit crunch that has slashed financing to companies and households, choking demand and prompting corporate belt-tightening.

Retail sales are an indication of household demand. Falling private consumption was one of the reasons for a shrinkage in the euro zone economy in the third and fourth quarters of 2008.

In response to the weak economic performance and falling inflation, the European Central Bank has cut interest rates by a total of 275 basis points to 1.5 percent over the last few months.

Eurostat said food, drink and tobacco sales fell 0.3 percent month-on-month in January, while sales of non-food products increased 0.4 percent.

Eurostat said euro zone hourly labour costs rose 3.8 percent year-on-year in the fourth quarter, down from an upwardly revised 4.2 percent in the prior three months.

The wages and salaries component of the hourly costs rose 3.9 percent year-on-year against 4.2 percent the quarter before. The fourth quarter is a period when many people receive their bonuses.

The data showed moderated wage growth in the European Union's biggest economies, such as Germany and France.

But the figures skyrocketed in some new EU member states outside the euro zone -- especially the Baltic republics, Bulgaria and Romania.

In Latvia, which was forced to seek help from the International Monetary Fund and the EU to support its balance of payments, labour costs increased by 20.6 percent.