The latest retail PMI (Purchasing Managers' Index)  data from Markit covering the Eurozone signalled that sales fell for the first time in three months. The seasonally adjusted Eurozone Retail PMI – which tracks monthly changes in the value of sales at retailers  -- declined to just below the no-change mark of 50.0. The latest figure of 49.7 indicated a marginal rate of decline, after July had seen the fastest growth since May 2008.

The overall fall in Eurozone retail sales mainly reflected a setback in the German retail sector, as sales rose further in France and declined at a weaker rate in Italy. In Germany, the monthly decline partly reflected a hangover from very favourable temporary conditions in July, such as the football World Cup. The broad underlying trend in Germany during 2010 so far has been positive.

In the Eurozone’s second-largest economy, France, retail sales continued to rise in August. However, the monthly rate of growth eased to a modest pace as the survey again reported a cautious mood among consumers. In Italy, sales continued to fall, but the rate of decline eased sharply to the slowest in the current seven-month sequence.

Although the headline figure declined sharply in August, this was the first drop in the PMI since February. Moreover, sales rose on a year-on-year basis for the second month running in the latest period. Annual growth was signalled in France and Germany, while the year-on-year decline in Italy eased sharply during the month.

Actual sales remained below planned levels in August. The extent of the shortfall widened since July, but was still less substantial than in any other month since May 2008. Consequently, retailers were optimistic regarding September sales targets.

Retail employment in the Eurozone rose slightly for the second month running in August. The current sequence follows a twenty-seven month period of continuous job shedding in the sector. Retail workforces expanded in France and Germany, but contracted marginally in Italy.

Having increased for the first time in two years in July, the value of inputs purchased by Eurozone retailers declined in August. The contraction was reflected in all three countries surveyed. As a result, stocks of goods for resale declined in all three, leading to the first contraction in the Eurozone as a whole for five months.

Purchase price inflation in the Eurozone retail sector eased to a five-month low in August. Despite this, gross margins deteriorated at a faster pace, reflecting lower sales during the month.

Commenting on the retail PMI data, Trevor Balchin, senior economist at Markit and author of the Eurozone Retail PMI, said: "August retail PMI data for the Eurozone placed a question mark over the sustainability of the consumer recovery, but the monthly slide in sales must be viewed alongside a very strong July that was boosted by good weather and the football World Cup.

"Unless a further fall is recorded in September, the July and August PMI figures taken together point to Q3 being the strongest quarter for retailers since Q4 2006. Sales remained up on a year earlier in the latest period and retailers gradually added to their workforces.

"While the sharp fall in the German Retail PMI in particular appears alarming, we note that this is likely a blip in an otherwise broadly positive trend in 2010. France reported further cautious growth in consumer demand, while Italian retailers’ fortunes showed some signs of lifting mid-way through Q3 as most survey variables for that country improved in August."

For the Retail PMI, Markit has recruited a representative panel of retail companies in France, Germany and Italy. Together, these three countries account for approximately 62% of total Eurozone retail sales by value. The panel includes large chain retailers as well as smaller retailers to ensure balanced representation of the true structure of the Eurozone retail sector.