The October Bloomberg Eurozone Retail Purchasing Managers' Index, a monthly survey indicating economic conditions in the Eurozone retail sector, indicates that month-on-month sales at Eurozone retailers rose marginally in October. The latest growth of month-on-month sales was the third in the past four months, although the recovery of overall demand has been weak.
The seasonally adjusted Bloomberg Eurozone Retail PMI rose above the no-change mark of 50.0 in October, to 50.4, after declining in September and ending a short-lived recovery in demand. To bring back customers, retailers reported a strong reliance on marketing campaigns. While remaining low by long-term standards, consumer confidence picked up from last month.
Compared to a year ago, Eurozone retail sales declined sharply in October, causing missed targets. The current period of contraction in yearly retail sales has extended to eighteen months, and the latest decline was the sharpest for four months. Each of the three main Eurozone economies registered falling yearly retail sales and, in line with monthly sales, Germany remained the worst performer. France and Italy registered falling year-on-year retail sales having both achieved growth in September compared to last year.
The overall rise in Eurozone retail sales in October mainly reflected higher sales in the French (50.5) and Italian (53.7) retail sectors. Italian retailers registered a further robust rise in sales from last month while French retail sales increased for the sixth successive month, though the rate of growth eased to a marginal level. Germany, registered a further decline in month-on-month retail sales (48.1), although the rate of contraction eased from September's sixteen-month high.
Although Eurozone retail sales rose in October compared to a month earlier, the increase was insufficient in relation to retailers' original targets, which were missed overall to the same substantial degree as in September (39.5). Eurozone retailers as a whole have not met their sales targets in any month over the past two years, reflecting a general reluctance among consumers to spend as the wider economy has performed relatively sluggishly. Moreover, pessimism was expressed by retailers concerning November sales targets (48.3), with only Italian retailers confident of surpassing their sales plans, as monthly sales there rose further.
Retailers cut back on purchases in October (48.4), the sharpest contraction in four months. The current weakness of demand in the sector was further highlighted as stocks of goods for resale actually expanded (50.4) despite the drop in purchases.
Average prices paid for goods for resale by Eurozone retailers rose at the sharpest rate in six months in October (54.6). Suppliers raised their prices during the month to compensate for their raw material costs increase, while retailers faced higher transport charges as a result of inflated fuel prices. This, combined with failure to meet sales targets and price discounting, led to a further sharp fall in retailers' gross margins in October (42.2).
Retail sector employment across the Eurozone declined in October (48.5) as weak demand led to some branch closures and other cost rationalizations. Though overall sales rose slightly during the month, some retailers could not justify current staff levels. In Italy, however, retail sector employment was unchanged from last month as sales there rose at a robust pace.
