Retail sales in the Eurozone fell for the first time in three months in May, according to Markit’s latest PMI (Purchasing Managers' Index) survey. Moreover, sales were only marginally higher than one year earlier, and retailers cut both staff levels and purchasing during the month. Of the three largest euro economies covered, Italy remained the main source of weakness, while France and Germany both registered slower growth.

The Eurozone Retail PMI is a single-figure indicator of changes in the value of sales at retailers. The PMI is adjusted for seasonal factors, and any figure greater than 50.0 signals growth compared with one month earlier. The PMI slipped from 52.2 in April to 48.8 in May. That was the lowest figure since October 2010, and also below the long-run survey average (since January 2004) of 49.1. The latest PMI figure was consistent with a broadly flat trend in official retail sales (on a three-month on three-month basis) as produced by the EU’s statistics office Eurostat.

Eurozone retail PMI figures are based on responses from the three largest euro area economies. May data signalled a persistent performance gap between Germany and France, and Italy. In the latter, monthly sales fell at the steepest pace for nearly a year, while the two largest Eurozone economies continued to record growth of retail sales.

That said, the month-on-month increases in sales in Germany and France were the weakest for seven and three months respectively. The retail PMIs have placed Italy as the worst-performing of the three countries thirteen times in the past fifteen months.

Across the Eurozone as a whole, retail sales were up only slightly on a year earlier in May. This was in contrast to the trend seen in April, when retail sales grew at the fastest annual pace in nearly three years (although this partly reflected the timing of Easter in 2011 compared to 2010).

In line with the pattern for month-on-month sales trends, Germany and France registered slower annual growth of retail sales in May while Italy posted a steep fall.

In a further sign that the retail sector was contracting, the value of goods purchased by retailers fell during the month. This was the first drop in purchasing activity for seven months.

Moreover, it occurred despite a further sharp rise in average wholesale prices, suggesting a steep fall in the volume of new items bought for resale. Purchase price inflation eased slightly since April, but remained relatively sharp.

Reflecting intense cost pressures and declining sales values, retailers suffered the worst drop in gross margins for a year in May. This contributed to a decline in headcounts in the sector, the first since last November.

Commenting on the retail PMI data, Trevor Balchin, senior economist at Markit and author of the Eurozone Retail PMI, said: "May PMI data signalled a downturn in the Eurozone retail sector, as support from the key German and French economies faltered and Italy continued to record a sharp drop in sales. Moreover, year-on-year sales were only slightly higher in May, confirming that the later Easter this year compared with 2010 had flattered annual growth in April. Data for the first two months of Q2 suggest a steep slowdown in growth of consumer spending in the single currency area.

"Retailers are also not seeing a lifting of pressure on their cost burdens, unlike firms in other sectors. Wholesale price inflation did not ease appreciably from April’s thirty-three month high, while across manufacturing and services the rate of input price inflation slowed sharply during the month, according to the latest flash PMI data. As a result of elevated cost pressures and falling sales, retailers’ gross margins deteriorated to the greatest extent for a year."