Bloomberg PMI Signals Further Decline in Euro Retail Sales

The latest Bloomberg Euro-Zone Retail Purchasing Managers' Index ("PMI(R)"), based on a mid-month survey of economic conditions in the euro area retail sector, indicates a continuing contraction in euro-zone retail sales for the third consecutive month. While the PMI rose to a three-month high during August, at 47.7 it remains below the crucial 50.0 no-change mark.
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NEW YORK -- The latest Bloomberg Euro-Zone Retail Purchasing Managers' Index ("PMI(R)"), based on a mid-month survey of economic conditions in the euro area retail sector, indicates a continuing contraction in euro-zone retail sales for the third consecutive month. While the PMI rose to a three-month high during August, at 47.7 it remains below the crucial 50.0 no-change mark.

The PMI, which provides data one month ahead of government-issued figures based on interviews with more than 1,000 retail executives in Germany, France and Italy, suggests that operating conditions remained tough for retailers at the height of the summer holiday period. August marked the sixth time in 2008 that sales have fallen. The latest contraction was largely attributed to continued caution amongst consumers with regard to discretionary spending, given the uncertain economic outlook and their reduced purchasing power at a time of continuing inflationary pressures.

There was some variance in retail sales trends across the three largest euro area economies:

-- Italian sales continued to fall, extending the current period of decline to a year-and-a-half. A rise in the respective index to a nine-month high of 44.8 from 38.2, pointed to a considerable easing in the rate of contraction.

-- The fall in Italian retail sales was not as strong as in Germany, where the rate of decline accelerated to its strongest of the year so far. At 44.1, the monthly sales index posted a reading that was well below trend.

-- France continued to register growth. The rate of expansion improved to a three-month high, as highlighted by an increase in the monthly sales index to 53.7, from 51.3.

According to the survey, which tracks retail sales, performance against targets, inventories, prices, employment and other key indicators, euro-zone retail sales remained below levels seen a year ago for a third successive month. The latest decline largely reflected ongoing weakness in Italy, which posted a considerable fall on the annual measure. Solid growth was registered in France -- largely reflective of improved weather relative to a year earlier. Annual retail sales were unchanged in Germany.

Sales by sector -- sharp fall in autos & fuel sales, food & drink posted further gains

The survey covers five product sectors and, of these, three posted annual declines in sales during August. The autos & fuel sector registered the biggest fall, as consumers held off from big-ticket purchases at a time of economic uncertainty and decreased purchasing power. In contrast, strong growth was registered by the food & drink category, while there was a return to expansion in pharmaceuticals following the marginal contraction registered during July.

Prices and margins -- margins fell sharply in line with discounting and rising wholesale costs

The prices paid by euro-zone retailers for goods for resale continued to increase during August. The rate of inflation weakened markedly to its lowest for a year as some suppliers elected to pass on a proportion of their cost savings following a reduction in petrol and fuel prices over the month. The prices index posted 62.7, down from 67.3 in the previous month. The rate of inflation nevertheless remained above the survey's long-run trend, with respondents reporting higher raw material prices. While purchase price inflation eased to its lowest for over a year in Germany and reached a seven-month low in Italy, French retailers signaled a stronger rate of increase in prices paid in August.

Amid reports of continued discounting and promotional activities designed to bolster consumption at a time of weak demand, gross margins at Eurozone retailers continued to suffer during August. The respective index fell slightly to 40.0, from 41.3 in the previous month. Rising wholesale prices also impacted negatively on margins. All three countries covered by the survey recorded worsening profitability, with Italy registering the steepest rate of deterioration.

Sales against plans -- targets continued to be missed

When assessed against previously set plans, sales in the euro-zone retail sector were again well short of expectations in August. Although not as steep as in the previous two months (as highlighted by a rise in the respective index to 41.2, from 38.1) the shortfall was again marked, which retailers blamed on the poor economic climate and decreased consumer purchasing power. By country, Germany missed targets to the greatest extent, taking over from Italy, where the shortfall was the weakest in ten months. France recorded a relatively modest shortfall in sales against plans. At the sector level, clothing & footwear and autos & fuel missed targets to the greatest extents during August.

Expected sales against targets next month -- pessimism signaled

August data showed a narrow degree of pessimism amongst retailers with regard to September sales, with the respective index registering 48.0, down from 49.5. The latest data revealed some variance across individual countries. While French and Italian retailers expect sales to come in below target next month, reflective of concerns that the economic slump would continue, German retailers were positive, forecasting a stronger than previously expected performance. German retailers' optimism was based on the potential benefits to sales of fresh marketing campaigns.

Employment -- modest contraction of staffing levels

Staffing levels in the euro-zone retail sector contracted for a fifth successive month during August. The rate of contraction remained modest, as highlighted by a seasonally adjusted index reading of 48.7, broadly unchanged on July's 48.6. French and Italian retailers trimmed their workforces at moderate rates, while German retailers registered a marginal increase in staffing levels for the first time in three months.

Retailers' buying and stock trends -- slight contraction of purchasing

The value of goods purchased for resale by euro-zone retailers declined slightly during August, as uncertainty over future demand trends led to retailers holding back from making potentially unnecessary purchases. The respective index recorded 49.5, down from 50.4 in the previous month. Retailers' purchases fell sharply in Italy, but rose at a robust pace in France.

The continued poor performance of sales relative to expectations underpinned further growth of unsold retail stock during August. It was the eighteenth successive month in which inventories have increased, although the latest expansion was modest and the weakest for eleven months. Stocks rose at a solid rate in Italy, and were slightly higher than a month earlier in France and Germany.

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