Eurozone retail sales rose at fastest rate in over two years in July as the latest retail PMI (Purchasing Managers' Index) data from Markit, signalled that sales rose for the second month running in July. The seasonally adjusted Eurozone Retail PMI - -  tracking monthly changes in the value of sales at retailers - -  remained above the no-change mark of 50.0, rising from June’s 50.4 (revised up from 49.7) to 52.4. The latest figure signalled the sharpest increase in sales since May 2008 (when sales received a boost from the timing of Easter). It was also the first back-to-back increase in sales since September 2007. However, the upward momentum was weather-related, while retailers remained uncertain in their outlook.

The overall rise in euro area retail sales in July mainly reflected resurgent consumer demand in Germany, boosted by good weather, and a sustained steady increase in French retail sales. Sales rose on a monthly basis in Germany for the second month running, and at the fastest rate since November 2006. Meanwhile, the current sequence of rising sales at French retailers was extended to a fourth successive month. The latest rate of growth in France was also the fastest since October 2009. In contrast, Italian retail sales declined for the sixth month running in July. The rate of contraction eased since June, but remained steep overall.

Eurozone retail sales were largely unchanged from one year earlier in July, following continuous declines throughout the first half of 2010. Mirroring the national trends for monthly sales, Germany and France posted higher annual sales, while a decline was posted in Italy. German retailers in particular commented that good weather had supported demand.

Sales remained below-target in July. However, the extent of the latest shortfall was the smallest in the current thirty-nine month period in which retailers have missed targets. Retail sales in Germany were better-than-planned for the second month running. However, sales in August are expected to disappoint, mainly reflecting a sharp drop in sentiment among French retailers.

Rising monthly sales in the Eurozone retail sector led to growth in employment in July. The retail workforce expanded for the first time since March 2008, albeit at a modest rate. This was despite further job shedding at Italian retailers.

A further sign of recovery in the retail sector was provided by a rise in the value of goods purchased for resale. This brought to an end a twenty-three month period of continuous decline. Moreover, the rate of growth was the fastest since February 2008. Stocks of goods for resale rose for the fourth successive month.

Source: Markit

The rising value of goods purchased by Eurozone retailers in July partly reflected sustained inflation of wholesale prices. That said, the rate of purchase price inflation eased slightly since June and remained below the long-run survey average (since January 2004). Correspondingly, gross margins declined at a weaker rate in July, with the respective index remaining below 50.0 but rising to a twenty-nine month high.

Commenting on the retail PMI data, Trevor Balchin, senior economist at Markit and author of the Eurozone Retail PMI, said:  "The retail climate in the Eurozone improved in July, driven by the strongest rise in German retail sales since November 2006. Across the trading bloc as a whole, sales were up at the fastest monthly rate since May 2008.

"Other indices from the survey added weight to the positive sales picture. Employment and purchasing at retailers both rose for the first time in two years, while gross margins declined at the weakest rate since February 2008.

"Although the boost in Germany did reflect temporary factors such as especially hot weather and the football World Cup, and Italy remained in trouble, the latest Eurozone retail PMI data provide hope that the recovery is at last becoming more broad-based."