March Eurozone survey data signalled a further monthly decline in retail sales in the single currency area. The rate of contraction eased since February, as signalled by a rise in the seasonally adjusted Eurozone Retail PMI to 46.9, from February’s eleven-month low of 44.6. However, on a quarterly basis, the decline in sales in Q1 was the worst since Q1 2009.
The Eurozone Retail PMI (Purchasing Managers' Index) survey by research firm Markit, covers retailers in the three largest Eurozone economies. In Germany, retail sales fell for the twenty-second month running, although the rate of contraction eased to a marginal pace that was the weakest since August 2009. Germany also posted a slower decline in sales than France and Italy. In France, retail sales were down at the slowest rate of 2010 so far, while Italian retailers suffered the steepest drop since February 2009, and were the worst-performing overall in March.
Eurozone retail sales remained well down on a year ago. The respective index slipped to an eight-month low and remained well below its long-run trend. All three countries registered sharp rates of contraction, with an especially steep drop in Italy. Here, the annual rate of decline was the fastest since March 2009.
The latest sector data signalled that the autos & fuel sector was a key source of underlying weakness in March. It posted by far the strongest year-on-year contraction of all five product areas covered, reflecting a slump in demand following the closure of government scrappage incentives. Having seen the steepest average annual fall in sales of all sectors in 2008 as customers cancelled big-ticket purchases amid the financial crisis, autos retailers benefitted from incentives in 2009 as the trend level of the year-on-year sales index rose to only just below the Eurozone average. During 2010 so far, the figures are again the worst of the five sectors covered.
Despite the ongoing declines in sales on both measures in March, retailers were at their most optimistic in nearly three years, expecting to beat previously set sales targets in April. French retailers were most confident, followed by their Italian counterparts, while German retailers were largely neutral in their expectations.
The latest employment data also provided evidence that business conditions could recover in the coming months. The euro area retail workforce continued to contract, but the rate of job shedding was only marginal and the slowest since May 2008. In line with the pattern for sales, Italian retailers shed staff at a faster rate than their German and French counterparts.
Margins in the Eurozone retail sector remained under strong downward pressure in March. The rate of decline eased since February, but was still sharper than in any other period of the past twelve months.
Falling profitability reflected a combination of declining sales and rising wholesale costs. Average prices paid by retailers for goods rose at the steepest rate since February 2009, as suppliers passed on higher raw material prices. That said, purchase price inflation remained weaker than the historic survey average.
With sales continuing to fall, retailers cut their purchasing activity for the twentieth consecutive month in March. This resulted in a further contraction in warehouse stocks of goods for resale. However, the rate of inventory decline was only marginal, reflecting slower falls in both monthly sales and purchases.
Commenting on the retail PMI data, Trevor Balchin, senior economist at Markit, said: “The latest data continued to signal falling sales in the Eurozone retail sector in March. Although the monthly rate of decline eased since February, this probably reflected the lifting of exceptionally harsh weather conditions seen earlier in Q1. Sales remained well down on the annual measure, with all three countries posting steep drops. Germany provided some cause for optimism as sales fell only slightly since February, while Italy resumed its position as the worst performer (it was not adversely affected by the weather as were France and Germany). March data also suggested that the autos sector was back in trouble following the end of scrap incentives.”