The Bloomberg Eurozone Retail Purchasing Managers' Index (PMI), based on a mid-month survey of more than 1,000 executives in the euro area retail sector, provides data one month ahead of government-issued figures. The PMI rose from 42.3 in February to 44.1 in March, signaling the smallest monthly drop in the value of sales in five months. The first quarter has seen an average monthly decline that was less steep than the record drop seen during Q4 of last year. The March decline remained strong by the survey's historical standards, and sales have now fallen for ten consecutive months.

When compared to February, sales again fell in each of the three largest Eurozone countries:

• Italy saw the steepest overall fall in sales, but the month-on-month sales index rose from 38.2 to 41.9, indicating an easing in the rate of decline. The monthly drop in sales was the smallest for six months, having eased markedly in recent months following November's record fall. Sales have fallen in each of the past 25 months in Italy.
• France also saw a moderation in the rate of sales decline, with the pace easing from February's record but remaining steep. The month-on-month index rose from 42.6 to 45.7, rounding off a first quarter that has seen the weakest sales performance in the history of the survey. French retailers have reported falling sales in five of the past six months.
• Germany was the only one of the three countries to report a steeper drop in sales than in February, though the rate of decline remained less marked than those recorded in the three months to January. The month-on-month index for Germany fell from February's four-month high of 45.4 to 44.4. Sales in Germany have now fallen for ten successive months.

The March survey also showed that euro area retail sales remained well below a year ago on a like-for-like basis. The year-on-year sales index edged up from 35.5 in February to 36.4, remaining below the 50.0 no-change level to register the fourth-steepest annual decline since the survey began in January 2004.

Sales by sector – all sectors reported falling sales; cars saw smallest decline

Sales fell compared to one year earlier across all five product categories in March. The steepest fall was seen for clothing & footwear – where sales contracted at the fastest annual rate for eleven months – followed by pharmaceuticals (which saw a record drop). Food & drink retailers also posted a faster yearly rate of sales decline, posting the second steepest fall in the survey history. Annual rates of decline eased in both household goods and cars & fuel, with the latter showing the weakest fall for ten months and the smallest of all sales categories. This partly reflected a boost from government incentives.

Sales against plans – sales continued to disappoint relative to targets

The sales against targets index rose from 35.1 to 36.9, staying well below the 50.0 neutral level to indicate that sales objectives were again missed by a wide margin. Targets proved to be too optimistic in all three countries, albeit to lesser extents than in February. Italy again reported the largest shortfall and Germany the smallest.

Sales sank below targets in all main product sectors, and were missed to the greatest extent in clothing & footwear. Car scrapping incentives enabled auto retailers to report the smallest shortfall of all product categories for the second month running.

Expected sales next month – confidence at six-month high

Expectations for beating targets in the coming month rose to a six-month high in March. The respective index rose from 50.1 to 55.8. Confidence has improved in France – where forecasts for sales are the highest for eleven months – and Germany, while Italian retailers' expectations are neutral. Retailers of food & drink and autos & fuel are again the most confident about hitting targets, while household goods is the only category for which targets are expected to be missed.

Prices and margins – price pressures weakest for 3½ years

Prices paid for goods by retailers showed the smallest monthly rise since August 2005. With the exception of an uptick in January, the rate of increase has fallen steadily since the middle of last year as weaker demand, lower commodity prices and competition among suppliers has softened inflationary pressures. The prices index dropped from 53.9 to 53.0 in March. Cost inflation moderated in Germany and France, and prices fell in Italy for the first time in the survey's history.

Gross margins at euro-zone retailers continued to worsen in March, but the rate of deterioration eased for the third successive month from December's record to show the smallest decline since last September. The margins index rose from 39.9 to 40.5. Of the three countries, Italian retailers again reported the greatest weakening of margins (despite seeing the smallest deterioration for eight months) while German firms reported the weakest decline.

Employment – rate of job losses at five-year high

Euro area retailers cut their employment levels at the fastest rate since February 2004, reducing staff numbers for the twelfth successive month. The employment index slipped from 47.4 to 46.7 in March as the rate of job losses gathered pace in all three countries covered by the survey. Italian retailers reported the largest employment cut (the third-highest on record), followed by France. German retailers reported the most marked acceleration in the rate of job losses compared to February, seeing payrolls fall at the fastest pace since February 2007.

Retailers' buying and stock trends – stock levels in record fall

Retailers' stocks of unsold goods fell for the seventh consecutive month in March, dropping at the fastest rate in the survey's five-year history to set a new record for the third month running. The stocks index registered 45.7, from 46.9 in February, reflecting record falls in stocks in Italy and France and a further drop in German retail inventories.

The stock run-down was largely deliberate, as retailers sought to reduce overheads and keep inventories as low as possible in the face of subdued high street demand. The value of goods purchased for resale by euro area retailers fell sharply again in March, albeit to a lesser degree than the record fall seen in February. The buying index rose from 40.3 to 43.4.