Eurozone retail sector data signalled a month-on-month rise in sales, allowing for seasonal factors. 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 above the neutral level of 50.0 and signalled monthly growth of sales for the first time since May 2008. The latest reading of 50.3 pointed to only a very weak increase, but was nevertheless greater than the six-year survey average of 49.0.

The headline Eurozone data are based on retail surveys covering the three largest Eurozone economies.

In December, both France and Italy posted higher monthly sales. It was the first time since May 2008 that any two of the three countries covered posted higher sales. Data signalled a stronger increase in France compared to Italy. In both countries, retailers reported positive effects from store expansions and an improving wider economy. However, anecdotal evidence suggested that temporary factors such as ongoing car scrap incentives and, in Italy, the switchover to digital TV, had also boosted sales. Meanwhile, in Germany, retail sales fell for the nineteenth successive month as consumers remained averse to purchasing non-essential big-ticket items. However, the rate of decline eased since November.

The total value of retail sales in the Eurozone was very marginally higher than one year earlier in December. This brought to an end a sequence of decline that lasted seven months. In line with the trend for monthly sales, France and Italy posted annual growth in sales in December. Germany recorded a decline, albeit at a much slower rate than in November.

Across the Eurozone, annual sales rose in two out of five sectors covered in December. Retailers of pharmaceuticals posted the steepest year-on-year rate of growth since May 2007, while the approaching end to car scrap incentives in France and Italy boosted sales of autos. This outweighed a marked contraction in Germany, where a similar scheme has already ended. The steepest falls in sales were posted in Clothing & Footwear and Food & Drink.

Retailers in the Eurozone continued to miss original sales targets in December. That said, the gap between actual and planned turnover was the lowest in eight months, reflecting smaller shortfalls across all three countries. Although sales rose in December, retailers are pessimistic regarding the January outlook. German retailers are expecting to miss targets to a greater extent than their French counterparts, while Italian retailers are confident of meeting planned sales levels.

Retail employment in the Eurozone continued to fall in December, extending the current contractionary sequence to twenty-one months (the longest in six years of data collection). That said, during the fourth quarter the pace of job losses has stabilised at a modest rate. German retail employment fell only marginally in the latest period, while Italian retailers cut workforces at the slowest pace since September 2008. In contrast, French retailers released staff at the fastest pace in four months.

Allowing for seasonal factors, retailers continued to cut back on purchasing activity in December. That said, the rate of contraction was the slowest since August 2008, reflecting slower declines in Germany and France and modest growth in Italy. A combination of rising sales and lower purchases led to a further decline in stocks of goods for resale in the Eurozone, extending the current sequence to sixteen months.

In line with the trend seen throughout the second half of 2009, prices paid by retailers to wholesalers rose only marginally in December. The rate of inflation was little-changed from November. A faster rise in prices in Italy was offset by a slower rate of inflation in France, while German retailers continued to pay lower prices for goods on average.

Commenting on the retail PMI data, Trevor Balchin, economist at Markit, said: “Although the retail PMI for the Eurozone entered positive territory for the first time in over a year-and-a-half in December, the data signalled only a marginal monthly gain in sales. Moreover, turnover was only fractionally better than a year ago when the financial crisis was in full flow. Anecdotal evidence from the national surveys also suggested that temporary factors, such as the soon-to-end car scrap schemes in France and Italy and the switch to digital TV in the latter, had also served to bolster demand. As such, retailers are understandably pessimistic regarding the short-term outlook and cut back on purchases of stock as a result.”