(Recasts, adds quote, details)
By Brian Rohan
BERLIN, May 4 (Reuters) - German households cut back on retail spending under the cloud of rising joblessness in March, a bigger fall than forecast, and a blow to hopes consumer spending could cushion the impact of the economic downturn.
Retail sales fell 1.0 percent on the month in March, preliminary data released on Monday showed. The retail figures exclude auto sales, which have been buoyed by a government car scrapping subsidy.
Year-on-year, retail sales dropped by 1.5 percent in March.
"Today's numbers dent hope that private consumption could substantially cushion the downswing of the German economy once the car scrapping scheme has been fully utilised," said Carsten Brzeski, economist at ING Financial Markets.
The German economy -- Europe's largest -- is facing its most severe recession since World War Two this year, with the government forecasting a 6 percent contraction.
The retail sales figures did not reflect the situation in the auto sales market. New car registrations jumped by 40 percent in March, data showed earlier this month.
"This shows the crowding-out effect the (car) scrapping subsidy has had on durable goods," Unicredit economist Alexander Koch said of the retail figures.
Some critics say the auto scrapping scheme could not only sap spending from other sectors of the economy, but also drag down future car sales.
"Private consumption could nonetheless turn out positive in the first quarter, above all due to auto sales. These could have a positive effect into the second quarter," said Koch, adding:
"In the second half of the year, we see the auto trade going into reverse. In addition, there is the growing worry about unemployment...There is likely to be a consumer recession in the second half of the year, even if the overall downturn eases."
The retail figures suggested that despite low inflation, little support -- other than buoyant car sales -- had gathered for consumer spending.
"Despite the sharp drop in inflation, retail sales have disappointed since the beginning of the year," said Brzeski.
German annual inflation quickened slightly in April after hitting a 10-year low in March, while joblessness rose for a sixth consecutive month.
Highlighting the tough environment, Germany's biggest listed
retailer Metro
It plans to cut 15,000 jobs.
In nominal terms, Monday's data showed sales fell by 1.4 percent from the previous month and decreased by 1.8 percent on the year.
The figures were based on retail data from 7 states accounting for around 76 percent of total turnover. March 2009 had 2 more shopping days than March 2008, the Office said. (Additional reporting by Paul Carrel, editing by Mike Peacock)