Spain's Retail Sales Drop Amid Belt Tightening

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DAVID GREENE, HOST:

NPR's business news starts with Spain's deepening economic crisis.

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GREENE: When a country is in economic trouble, there's often a domino effect, and Spain is experiencing that right now. With one-in-four workers out of a job, Spain has the highest unemployment in Europe.

With jobs scarce, people have been more careful with their money. And as Lauren Frayer reports from Madrid, that's now producing more bad news - a record drop in retail sales.

LAUREN FRAYER, BYLINE: Spanish shoppers cut their spending by nearly 10 percent last month, compared to the previous year. Sales of things like clothes and cosmetics fell 20 percent.

Among those holding back is Jose Santamaria, a social worker who says austerity measures have blindsided him.

JOSE SANTAMARIA: One year ago, all my family were working, I was working, and I thought everything was OK.

FRAYER: Then he lost his job, right around the time taxes went up.

The economy's been bad here for four years, but the government only started slashing budgets dramatically this year. It's trying to convince markets Spain won't need a bailout. But many now fear the medicine may be killing the patient.

Even people who have jobs, like lawyer Aitor Lascano, have been forced to cut discretionary spending on things like clothes and movie tickets.

AITOR LASCANO: A lot of clients that I have had the last year haven't paid me money.

FRAYER: Last month was the tipping point, says economist Gayle Allard.

GAYLE ALLARD: By April, people were really afraid and starting to think about, what happens if they foreclose on me, or if we leave the euro? You know, all these dramatic scenarios.

FRAYER: Those scenarios are looking more likely. Spain's borrowing costs are near levels that sent Greece, Ireland and Portugal into bailouts.

For NPR News, I'm Lauren Frayer in Madrid. Transcript provided by NPR, Copyright NPR.