Berlin, Aug 3 - German retail sales fell by 1.8 percent month-on-month in June, missing expectations for a slight rise and denting hopes that consumer spending could help support Europe's largest economy.
Sales dropped by 1.6 percent year-on-year, Federal Statistics Office figures showed on Monday.
The mid-range forecast of analysts polled by Reuters was for retail sales to rise by 0.5 percent month-on-month and to increase by 0.9 percent year-on-year.
"That is a disappointment," said Klaus Schruefer, economist at bank SEB.
"In the medium-term, retail sales should be burdened further when short-time work gives way to job losses. Then a lot of workers will have less in their pockets."
Major use of shortened working hours has reduced job losses in Germany, where unemployment has risen by only 300,000 since the global financial and economic crisis intensified with the collapse of U.S. investment bank Lehman Brothers last September.
The surprise fall in retail sales bucks a recent run of positive reports on the economy and shows consumers are holding down their spending despite a benign inflation environment and signs the economy may be stabilising.
Business morale rose for a fourth month running in July, hitting its highest level since October, and unemployment unexpectedly fell for the first time in nine months.
But there is a general consensus among economists that increased lay-offs are in the pipeline.
Gloomy news from the retail sector on Monday showed the economy is still feeling the impact of its deepest recession since World War Two.
Metro, the world's fourth-largest retailer, posted better-than-expected second-quarter underlying operating earnings but said it expected retail sales to fall further in coming months.
Many sectors of the German economy -- which the government expects to contract by a record six percent this year -- are still suffering acutely from the crisis.
The Statistics Office said retail sales fell 1.6 percent month-on-month and 2.0 percent on the year in nominal terms.
The data were based on sales data from seven states accounting for around 76 percent of retail activity in Germany.
In the first six months of 2009, sales were down by 2.1 percent in real terms year-on-year.