Tuesday, April 29, 2008

Eurozone Retail PMIs April 2008

The Bloomberg Eurozone Retail Purchasing Managers' Index, an indicator based on a mid-month survey of economic conditions in the euro area retail sector and providing data one month ahead of government issued figures, fell a record 6.4 points from 48.2in March to a survey low of 41.8 in April. This signals the steepest monthly decline in sales since data were first collected in January 2004.

Retailers blamed a combination of bad weather, the timing of Easter, poor consumer confidence, squeezed household budgets due to rising food and energy prices for the steep drop in sales at the start of the second quarter. In Italy, ongoing political uncertainty was an additional factor cited by retailers.

Italian retail sales showed the largest fall of the three countries, with retail spending dropping at the fastest rate in the survey's history by a wide margin (the index was down from 36.4 to 31.4). Italian sales have now fallen for fourteen straight months.

German sales fell sharply, with the rate of decline similar to the three-and-a-half year record seen at the turn of the year. The index dropped from 51.5 to 44.6, representing a marked turnaround from the growth seen in February and March.

French retail sales showed the weakest decline of the three countries; nevertheless sales fell at the fastest monthly rate since January 2006 (the index slumped from 53.3 to 46.2). The April fall contrasted with robust increases in sales over the first quarter.

Sales fell below their levels of a year ago at the greatest extent yet recorded by the survey: The year-on-year sales index plummeted to a new low of 35.7, from 49.3 in March.

Prices paid for goods by retailers continued to rise at an elevated pace in April. The prices index fell from 67.4 to 66.5, but remained well above the long-run average of 58.0. The overall easing in purchase price inflation reflected a slowdown in France, to a seven-month low. In Germany, the rate of inflation hit a four-month high and was the sharpest of the three countries, while purchase price inflation in Italy accelerated slightly to a level exceeded by the survey high recorded last October. By sector, food & drink retailers again registered the sharpest overall rise in prices.

Retailers reported a widespread inability to pass on rising costs due o price resistance among cautious customers. As a result, gross margins in he retail sector deteriorated at the fastest rate yet recorded by the survey (the margins index slipped from 41.9 to 39.0). Survey-record rates of decline were seen in both Italy and France, with Italian retailers reporting by far the sharper fall of the two. A considerably more modest rate of margin squeeze was registered among German retailers compared to their French and Italian counterparts, though the rate of decline nevertheless accelerated since March.

Retail targets were missed in April to an extent seen once before in the survey's history (in May 2004). In some cases, poor sales relative to targets reflected an underestimation of the impact of the early Easter, but in most instances were linked to adverse weather conditions and subdued consumer morale. The index of actual sales relative to planned sales fell sharply for the second month running, from 36.4 to 31.2. Targets were again missed in all three countries, led by Italy and then France, which both saw record shortfalls. By sector across all countries, targets were missed for all sales categories. Moreover, the shortfalls in clothing & footwear, household goods and pharmaceuticals were all the greatest indicated to date.

The combination of rising non-staff costs and weak sales caused employment in the Eurozone retail sector to fall marginally in April, following marginal gains in the first three months of the year (the index fell from 50.1 to 49.5). A slight rise in French retail employment was countered by a small decline in Germany and a larger fall in Italy, where the rate of job losses in the past two months has been higher than at any time since late 2004.

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