Saturday, May 31, 2008

Eurozone Retail PMI May 2008

The latest reading on the Bloomberg Eurozone Retail Purchasing Managers' Index (PMI) suggests that European retail sales rose in May at the fastest rate since April 2007, and registered the first increase for three months.

The Bloomberg Eurozone PMI, 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, registered 53.1 in May, suggesting a significant bounce-back from April's survey low of 41.8. The improvement reflected higher sales of clothing & footwear, food & drink and household goods, commonly attributed to better weather compared to April and to the timing of Easter.

However, despite the pick-up during May, sales have fallen over the first five months of the year on average, suggesting that business conditions in the Eurozone retail sector are generally subdued. Also, due to the very early timing of easter this year, and some very untypical weather, it is hard to interpret the month on month readings. If we add the two readings - April and May - together, and halve the result, we get 47.45, which means on average there was contraction across both months.

In May sales rose in Germany and France but fell in Italy.

Having fallen sharply in April, German sales bounced back in May, showing the largest monthly gain since November 2006. The index jumped from 44.6 to 56.6. The turnaround was commonly attributed by panelists to improved sales of seasonal clothing and household goods resulting from improved weather. Looking back at the index, and the data in recent months (not to say years) it is hard to see the May reading as anything more than temporary "bounce" following several months of quite weak readings.

French retail sales showed a stronger rise in monthly sales than Germany, posting a sharp increase and a reversal from the decline recorded in April. The index leapt from April's twenty-seven month low of 46.2 to hit a twenty-three month high of 59.6 in May.

Italian retail sales fell for the fifteenth successive month. Although the rate of decline slowed from April's record pace (the index rose from 31.4 to 38.8), the last three months have seen the three sharpest falls in sales seen over the survey's four-and-a-half year history. Consumers remained reluctant to spend due to squeezed incomes and concerns over the economic and political environment.

Sales Component

Eurozone retail sales registered the strongest year-on-year increase for thirteen months in May. Having hit a record low of 35.7 in April as poor weather and the timing of Easter hit sales compared to a year ago, the year-on-year sales index climbed to 56.1 in the latest period. Strong recoveries were registered in both Germany and France in May, with the latter seeing the sharper rate of increase, but sales continued to fall on an annual basis in Italy. However, over the first five months of the year on average, retail sales across the Eurozone have run marginally below the level seen a year ago.

Sales by sector

Having seen the sharpest year-on-year fall in sales for over two years in April, food & drink retailers reported a record increase in May. Similarly, sales of clothing & footwear showed the first rise for eight months and sales of household goods rose for the first time since last June as improved weather spurred demand for new season's ranges, helping to counter record falls in both sectors in April. The pharmaceuticals sector also saw an increase in sales on a year ago -- the first such rise for four months -- leaving autos & fuel as the only sector to see a decline in year-on-year sales in May.

Prices and margins

Prices paid for goods by retailers rose at a rate just below the record pace seen last November. The prices index rose from 66.5 to 68.3. All three countries saw steep rises in average purchase prices, with German retailers again registering the strongest rate of inflation. That said, it was in Italy that the most marked acceleration in price inflation was seen, with the rate of increase hitting a new record high. By sector across all countries, the overall acceleration in price inflation was driven by the auto & fuel sector, where prices paid for inputs hit a record high (reflecting high oil prices). Food & drink retailers nevertheless again registered the sharpest overall rise in prices while clothing & footwear saw the weakest rise.

Retailers' margins deteriorated again in May, mainly due to rising purchase costs. The margins index rose from April's record low of 39.0 to reach a three-month high of 43.0. Italian retailers reported by far the sharpest deterioration in margins while retailers' profits were squeezed to the weakest extent in Germany.
Sales against targets -- targets missed by smallest margin for thirteen months
Despite the marked improvement in sales performance compared to one month earlier, retail targets were missed again in May. However, the index of actual sales relative to planned sales rose from April's near four-year-low of 31.2 to 45.2, indicating the smallest shortfall in sales against targets for thirteen months. Targets were missed very narrowly in both Germany and France, though this was partly offset by a marked shortfall in Italy. By sector across all countries, targets were missed for all sales categories with the exception of food & drink. Of note, a marginal drop against targets was seen for clothing & footwear. Targets were missed to the greatest extent in the autos & fuel sector.

Expected sales against targets next month

Retailers remained confident of beating targets in June, though they were less optimistic than a month ago. The expectations index fell from 59.1 to 56.9. French retailers were again by far the most optimistic. Expectations of beating targets rose to a six-month high in Italy, although the level of confidence remained the weakest of the three countries. Sales are expected to beat targets across all product sectors in May except household goods. The greatest optimism was seen in the food & drink sector, followed by clothing & footwear.


Retail employment fell marginally for the second month running in May (the index registered 49.9 from 49.5 in April) as firms sought to cut staff costs in the face of rising wholesale prices and consumer caution. A modest increase in German retail employment was accompanied by almost no change in France and a fifth successive monthly decline in Italy.

Retailers' buying and stock trends

Purchases of goods for resale by retailers rose very modestly in May, following a marked fall in April. The index of purchases improved from 46.1 to 50.7. The latest expansion was largely driven by increased purchasing in France, while a far more muted increase was seen in Germany. Purchasing fell sharply again in Italy. Meanwhile, the level of unsold stock in the Eurozone retail sector continued to build up. The expansion was faster than in April, albeit below the record pace seen in April 2006. The stocks index moved up from 53.6 to 55.6. Inventories rose in all three countries, led by France.

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