Having fallen continually throughout the previous 16 months, Eurozone retail sales stabilised in October. The Markit Eurozone Retail PMI (Purchasing Managers’ Index), based on a mid-month survey of more than 1,000 executives in the retail sector, rose from 48.6 in September to 50.0, signalling no change in the total value of like-for-like store sales compared to one month ago. In Germany, data for September from the national statistics office Destatis, which was issued today, shows that retail sales dipped 0.5% from August. There was an annual fall of 3.9%.

Of the big-three Eurozone economies monitored - - which together account for 62% of Eurozone retail turnover - - France recorded by far the strongest sales performance, registering a second successive monthly increase in sales and the steepest rate of growth since August of last year. Meanwhile, rates of sales decline softened in both Italy and Germany. Italy saw the smallest drop in sales for two years, but still registered the weakest performance of the three countries.

Compared to the same period a year ago, like-for-like sales across the Eurozone were down for the sixth successive month in October, although the deterioration was the weakest seen over this period. All three countries posted sales below levels of a year ago but, again, trends varied markedly by nation. A steep easing in the year-on-year rate of sales decline in France contrasted with faster contractions in Germany and Italy.

Since the survey started in January 2004, 0arkit says that the Retail PMI has been an accurate indicator of year-on-year changes in Eurozone retail sales as measured by Eurostat (at constant prices). As the chart above shows, the softening in the rate of decline in sales indicated by the PMI in recent months suggests that the official series should soon show a moderation from the 2.4% year-on-year rate of decline recorded in August.

Only retailers of pharmaceuticals, toiletries and cosmetics reported a year-on-year increase in sales in October, with growth hitting a near two-year high. The rate of decline eased for household goods but gathered pace in food & drink, autos and clothing and footwear, with the latter seeing the steepest overall decline.

On average, retailers expect Eurozone sales to rise in November. France recorded the greatest optimism, followed by Italy. German retailers, on the other hand, expect sales to fall next month. By sector across the Eurozone, retailers of pharmaceuticals, toiletries and cosmetics expect the strongest rise in sales, while autos and fuel retailers anticipate the weakest growth.

Margins continued to fall across all three countries monitored in October. This suggested that higher sales were mostly generated only through aggressive price discounting. Italy again recorded the greatest deterioration in retail margins.

With sales failing to grow and margins tightening, retailers sought to cut costs by reducing headcounts again in October. Employment fell for the 19th consecutive month, although the rate of job losses was unchanged on September’s 13-month low (reflecting only marginal declines in both France and Germany).

Retailers continued to cut back on their purchases of goods for resale, resulting in a decline in inventory holdings for the 14th month in a row. However, purchases fell at a far slower rate than earlier in the year, meaning that the overall decline in retail warehouses in October was the smallest for nine months.

Prices paid by Eurozone retailers for their stock were largely unchanged in October, though this again masked wide national variations. Prices rose at the fastest pace for seven months in France, but only modestly in Italy. In Germany, prices fell for the third month running and showed the fastest monthly decline since data for Germany were first collected in mid-2002.

Commenting on the retail PMI data, Chris Williamson, Chief Economist at Markit, said: “The October Retail PMI points to a stabilisation of Eurozone retail sales. But this masks very divergent patterns within the primary member countries, as robust growth in France contrasted with falling sales in Germany and Italy. Price trends also varied markedly, with record price discounting by wholesalers pointing to a heightened risk of deflation in Germany, while accelerating growth of prices was evident in France.”

For the Retail PMI, Markit Economics says it has recruited a representative panel of retail companies in France, Germany and Italy. Together, these three countries account for approximately 62% of total Eurozone retail sales by value. The panel includes large chain retailers as well as smaller retailers to ensure balanced representation of the true structure of the Eurozone retail sector. Similarly, the composition of the panel by classification of retailer (i.e. type of good sold) is monitored to ensure accurate representation. Markit Economics ensures the correct structure remains in place over time and that response rates remain sufficiently high to generate reliable economic data.