Retail business in Eurozone continued to worsen in May. The Bloomberg Eurozone Retail Purchasing Managers' Index (PMI), is based on a mid-month survey of more than 1,000 executives in the region's retail sector and provides data one month ahead of government-issued figures. Remaining below 50.0 and signaling contraction of monthly sales, the seasonally adjusted PMI registered 47.1 in May. Moreover, the decline in the index from 48.4 in April pointed to a slightly faster rate of decline. Meanwhile, alsoin May, Eurozone GDP trend growth has risen from the low reached in the first quarter of 2009, though remaining very subdued, according to the EuroCoin indicator.

The €-coin indicator rose for the third month in a row, to -0.89, from a low of -1.27 reached last February. Financial, stock markets and survey data (Ifo, PMIs, etc.) gave a positive impulse to the indicator, while industrial production exerted a negative effect. €-coin – developed by Banca d'Italia (Bank of Italy) and Centre for Centre for Economic Policy Research (CEPR) – provides a single number that summarises – in real time – the current economic outlook for the Eurozone. The indicator is published monthly and gives a preliminary estimate of GDP growth for the current quarter cleaned of short run noise and measurement errors.

The latest anecdotal evidence from the Bloomberg PMI survey linked falling sales to weakness in the wider economy, which served to depress consumer willingness to spend. There were also reports of a diminishing impact from government autos scrap bonuses. The value of sales also fell as retailers attempted to boost volumes through discounting.

For the fourth month running, all three countries included in the survey registered lower month-on-month retail sales:

• Germany posted the steepest overall fall in monthly sales, replacing Italy in that respect. The index remained in negative territory for the twelfth successive month and fell to 46.3. This signaled a rate of decline that was faster than in April but slower than in the preceding five months.

• Italy recorded a drop in monthly sales of similar severity to that seen in Germany. The current sequence of decline now stretches to twenty-seven months. However, the rate of contraction stabilized in May at a weaker pace than those indicated during Q4 2008 and Q1 2009 as the index registered 46.5, little-changed from April's 18-month high of 46.8.

• France registered a fourth straight monthly decline in retail sales. The rate of contractionaccelerated since April, but to a lesser extent than that seen in Germany. The index was slightly lower at 48.3, from 49.2, indicating a modest rate of decline that was the weakest of the three surveyed countries.

May data indicated a marked year-on-year fall in euro retail sales. The index lost nearly all the ground it had recovered in April, when annual sales growth was indicated for the first time since last May.

The latest reading therefore underlined the likely impact of the earlier timing of Easter in 2008 on annual sales results during the April survey. At 38.7, the index signaled a marked contraction that was more in line with the overall trend in 2009 so far.

Sales by sector – food & drink and clothing & footwear sales declined sharply

Annual sales data split by product sector showed lower sales compared to May 2008 across all categories. Sales of food & drink and clothing & footwear both fell following strong annual growth the previous month (again reflecting the timing of Easter), with the latter sector registering the sharpest decline of all sectors in May. The next-worst performing area was household goods.

Sales against plans – targets missed by a wide margin

The overall monthly decline in retail sales in May reflected failure to meet previously set plans. The actual versus planned sales index remained well below 50.0, posting 35.8. That was well below the long-run trend level of 40.0 and was further evidence of depressed demand conditions in the retail sector.

Expected sales next month – one-month outlook little-changed from April

The index of expected sales next month remained above 50.0 in May, at 52.1, down fractionally from April's 52.4. That was indicative of a moderately positive sales outlook for June, with firms hoping that an impending wider economic recovery will support consumer demand. Shop expansions were also cited as reasons for optimism should consumer morale pick up.

Prices and margins – wholesale price inflation unchanged at survey-record low

The prices paid index stabilized at a joint-record low in May, unchanged from April at 52.2. Prior to that, the index had fallen eight times in nine months as inflationary pressures faded with weakening demand. National data suggested that retail sector purchase price inflation was relatively strong in Italy. By product sector across the Eurozone, average purchasing costs rose sharpest in pharmaceuticals, and fell in both food & drink and clothing & footwear.

Although cost pressures for retailers remained weak in May, margins remained under pressure from falling sales. The seasonally adjusted index was weaker than its long-run average, at 41.2. In line with the trend seen throughout 2009, gross margins declined sharpest at Italian retailers during the latest period.

Employment – retail workforce contracted for 14th month running

Falling sales and margins led to another round of job shedding at Eurozone retailers in May. The latest rate of decline was sharper than the average over the current 14-month sequence. French and Italian retailers cut staffing at faster rates than their German counterparts during the month. By product sector at the Eurozone level, job losses were most pronounced in clothing & footwear, followed by pharmaceuticals.

Retailers' stock trends – inventory depletion continued

With sales falling on both the annual and monthly measures, retailers reduced their purchases of new goods in May. The current period of decline now extends to ten months, and the rate of contraction accelerated. Correspondingly, stocks of good for resale declined, as they have done since last September when the wider economic downturn intensified. Moreover, the rate of contraction in May was a survey record.