Eurozone Retail Sales Drop 8th Month; Italy, France are Down; Germany Retail Sales Up, Outlook Down

German retail sales bounced back for the second month, but not enough to prevent the aggregate eurozone sales from falling for the eighth consecutive month.

Summary of June findings:

The Eurozone retail sector remained in contraction mid-way through 2012, according to PMI� data from Markit. Sales fell on a month-on-month basis for the eighth successive month � the third-longest sequence in the survey history � and purchases of new goods by retailers declined at the second-fastest pace on record. That said, the rate of decline in sales slowed sharply during the month.



Germany, France, Italy Sales

The key sentence is "purchases of new goods by retailers declined at the second-fastest pace on record."

Will inventory liquidation continue or will retail sales rebound? Liquidation can only go so far, but that does not mean sales will rebound in a meaningful way. There is certainly no reason to expect a rebound in sales, but data seldom runs in a straight line.

Much depends on Germany. Yet, in spite of a two month rebound in sales, Germany alone could not pull aggregate sales up to even.

Italy Remains a Disaster Zone

Individually, Italy Retail Sales remain a disaster zone.

June sales were down sharply on levels seen in the corresponding month one year ago, which firms linked to lower consumer purchasing power and greater uncertainty over the economic outlook. The annual rate of contraction was, however, slower than May�s series record.

Targets set for June were missed by the majority of firms, with a lack of confidence among clients and unfavourable weather conditions among the reasons cited by those that registered lower-thanexpected sales. Although the narrowest for three months, the gap between actual and planned sales remained considerable.

As was the case in each of the previous two survey periods, retailers were downbeat with regards to the prospects of achieving July targets. In fact, the overall degree of sentiment in June was one of the most negative in the series history, matching that recorded last December.

Markets turn on extreme sentiment, yet sentiment can remain extreme for long periods of time. Here is an accurate assessment by Markit economist Phil Smith.

�Retail PMI data for June continue to underline the effects that decreasing real wages, rising tax burdens and greater job insecurity are each having on Italian households� willingness and ability to spend. High street sales were again down markedly on the month, leading to further reductions in profitability and employment in the sector. Rates of decline were slower in June, though, given that this came on the back of some of the worst months trading in the series history, this was by no means a cause for celebration.�

Retailer Purchasing Falls at Record Rate in France

Inventory reduction is underway in France as Purchasing Falls at Record Rate

French retailers reported a slower decrease in sales during June. The latest drop was only modest and much weaker than in the preceding two months. However, the performance over Q2 as a whole has been the worst since the inception of the survey in 2004, as trading has suffered in the face of difficult economic conditions. With retailers attempting to prevent an unwanted build-up of inventories, the value of goods purchased for resale fell at a series-record rate. Meanwhile, intense competitive pressures led to another marked drop in gross margins, while retail sector employment decreased at an accelerated pace.

Jack Kennedy, Senior Economist at Markit and author of the France Retail PMI, said: �The French retail sector continued to struggle in June, as the tough economic climate led to another drop in sales. The failure to rebound from May�s severe weakness, when trading was impacted by a run of public holidays and the presidential election, underlines the strong headwinds facing retailers amid depressed consumer purchasing power and high unemployment. The overall sales performance over the second quarter has been the weakest since the survey began in 2004, and it was therefore no surprise to see accelerated falls in both purchasing and employment during June as retailers went into retrenchment mode.�

Germany Retail Sales Up, Outlook Down

Markit reports Stronger increase in German retail sales, but outlook is reported as weakest for 2� years

German retailers indicated a further rebound in monthly sales in June, with the pace of expansion reaching a three-month high. At 52.4, up from 50.7 in May, the seasonally adjusted Germany Retail PMI was above the neutral 50.0 value for the second month running. The latest reading pointed was above the long-run survey average (49.9) and indicated to a moderate increase in month-on-month retail sales in Germany. Some firms linked the improvement to better weather conditions and higher consumer spending as a result of the European Football Championship in June.

First drop in goods ordered for resale in nine months

Retailers in Germany responded to worries about the outlook for sales by reducing the value of goods ordered for resale at their stores in June. This was the first reduction since September 2011 and in turn contributed to the slowest accumulation of stocks of goods for resale so far in 2012.

In spite of highly unusual reports of higher sales due to "better weather" as well as higher sales because of football (soccer) championships, Markit reports ...

Actual sales in June were generally lower than expected, as has been the case in each of the past three months. Moreover, German retailers signalled a marked degree of pessimism about the outlook for their sales in one month�s time. The balance of firms expecting to reach their targets in July is the lowest for two-and-a-half years. Anecdotal evidence widely cited concerns about the impact of weakening domestic economic conditions, alongside uncertainty related to the euro area crisis, as the main factors leading to downbeat sentiment in the retail sector.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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