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News : EU Economy Last Updated: Aug 30, 2011 - 2:20 PM

Retail sales in Eurozone fell for the fourth month in a row in August
By Finfacts Team
Aug 30, 2011 - 9:15 AM

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Retail sales in the Eurozone fell for the fourth month in a row in August, according to Markit’s latest PMI (Purchasing Managers' Index). There was also further evidence of the disparity across the region between Germany and the rest, as a stronger rise in German retail sales was not enough to offset weakness in France and Italy, the two next-largest euro economies. The overall rate of decline accelerated slightly to the fastest since October 2010.

The Eurozone Retail PMI is a single-figure indicator of changes in the value of sales at retailers. Markit says the PMI is adjusted for seasonal factors, and any figure greater than 50.0 signals growth compared with one month earlier. The PMI remained below 50.0 in August, signalling a fourth successive monthly drop in sales revenues. It also fell to 48.0, the lowest in ten months. The latest PMI figure suggested that recent falls in retail sales as measured by the EU’s statistical office Eurostat in May and June (on a three-month-on-three-month basis), would continue into the third quarter.

Eurozone retail PMI figures are based on responses from the three largest euro area economies. In August, German retailers reported a stronger outturn, posting the sharpest monthly gain in sales since April. Sales growth in the largest euro economy has now been sustained for 11 months, the longest sequence since the series started in January 2004.

Offsetting the stronger German retail sector in August was a sharper decline in French retail sales. The rate of contraction compared with the previous month was the strongest since February, and extended the current sequence of declines to three months.

The third-largest euro economy, Italy, registered another steep fall in retail sales in August. The monthly rate of contraction was broadly similar to that posted in July, remaining stronger than the long-run series average. Italian retail sales have fallen continuously for the past six months.

Markit said Eurozone retail sales were also lower on an annual basis in August. The current sequence of year-on-year decline now stretches to three months. Similar national trends were evident, with strong German growth being more than cancelled out by rapid falls in both France and Italy.

Sales again disappointed next to original plans, leading to a build-up of unsold stock. Retailers’ inventories of goods for resale rose for the sixth month running, the longest sequence in three years. Moreover, the rate of growth strengthened to a robust pace.

Consequently, the value of goods purchased by Eurozone retailers fell slightly in August. Moreover, the volume of purchases fell more sharply, as average purchase prices continued to rise rapidly during the month. This sustained inflationary pressure, added to weak sales demand, led to a further marked deterioration in retail gross margins during August.

A combination of falling sales and cost pressures led retail employment to slow almost to a halt in August. Latest data marked a third successive month of net job creation in the sector, but at only a negligible rate.

Commenting on the retail PMI data, Trevor Balchin, senior economist at Markit and author of the Eurozone Retail PMI, said: "Eurozone retailers continued to endure challenging conditions mid-way through the third quarter. Sales continued to fall, despite a stronger performance from regional champion Germany. The divergence between Germany and Italy remains stark, while French retailers are showing signs of slipping into a sustained period of falling sales.

"Reacting to the subdued market conditions, retailers aimed to limit growth of unsold stock by cutting the value of their purchases. Moreover, retailers in France and Italy cut workforces on average, almost halting the current period of job creation in the sector at the Eurozone-wide level. Compounding retailers’ difficulties, cost pressures remain stubbornly high, having not eased off in the way that recent PMI data for manufacturing and serviceshave signalled."

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.

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