Falling Consumer Confidence, Rising Energy Costs Blamed



    NEW YORK, July 30 /EMWNews/ -- The latest Bloomberg Eurozone Retail

Purchasing Managers' Index ("PMI(R)"), based on a mid-month survey of

economic conditions in the euro area retail sector, rose from 44.0 in June

to 46.0 in July. By remaining below the 50.0 level, the index pointed to a

further fall in sales during the month despite an easing in the rate of

decline from the steep pace seen in June.



    The PMI, which provides data one month ahead of government issued

figures based on interviews with more than 1,000 retail executives in

Germany, France and Italy, suggests that retail conditions remained

difficult at the start of the third quarter. The PMI indicates sales

falling at a pace broadly similar to the average recorded over the second

quarter -- which had seen the steepest drop yet recorded for any quarter

over the survey history. Retailers blamed the latest decline in sales on

deteriorating consumer confidence, economic uncertainty and household

finances being squeezed by rising energy costs.



    Sales trends varied markedly across the three largest euro area

economies:



    -- Italian sales again showed a marked rate of decline. Although the

pace eased compared to June (the month-on-month sales index rose from 36.3

to 38.2), it was nevertheless the fourth-steepest drop indicated over the

history of that series.



    -- Retail sales also fell sharply in Germany, though to a lesser extent

than in June. The month-on-month sales index rose from 44.9 to 46.4, but

still indicated a rate of decline that was relatively steep by the

historical standards of the series.



    -- Sales rose modestly in France, offsetting the fall seen in June.

However, the rate of increase remained well down on the buoyant pace seen

earlier in the year. The month-on-month sales index recovered from 48.7 to

51.3.



    According to the survey, which tracks retail sales, performance against

targets, inventories, prices, employment and other key indicators, Eurozone

retail sales continued to run well below levels of a year ago in July.

Eurozone sales posted the most severe annual rate of decline for three

years over Q2 as a whole. Italy posted sharply lower sales than a year ago,

while no change was seen in France and a slight improvement registered in

Germany.



    Sales by sector -- food & drink posted annual growth in sales



    Of the five product categories covered by the survey, food & drink

retailers reported a year-on-year increase in sales revenues in July.

However, gains in annual sales in part reflected higher prices rather than

improvements in volumes. For the third successive month, the steepest

decline was reported for autos & fuel, as deteriorating consumer confidence

hit car sales. Annual sales of pharmaceuticals were marginally lower

following two months of growth.



    Prices and margins -- higher wholesale prices and weak consumer demand

hit margins again



    The rate of increase in prices paid for goods by retailers remained

elevated in July, picking up on June to register the fourth-highest pace

yet recorded by the survey. The prices index edged up to 67.3, from 67.1.

Purchase price inflation hit record highs in both Germany and Italy, but

eased to a ten-month low in France.



    The food & drink sector posted a much steeper increase in purchase

prices than the four other product categories, which all registered

similarly strong rates of inflation.



    Retailers' margins were squeezed sharply again in July by a combination

of rising wholesale prices and the need to offer discounts to

price-conscious consumers. At 41.3, the margins index remained well below

the 50.0 no-change level, up slightly from 39.9 in June. Italian retailers

continued to report by far the sharpest deterioration in profit margins,

though marked falls were also registered in both France and Germany. Lower

margins were widespread across all five product sectors, with the steepest

fall indicated in clothing & footwear.



    Sales against targets -- targets missed again in July



    Sales again fell well short of targets in July. Although the shortfall

was slightly less than that recorded in June, the extent remained high by

the historical standards of the survey. The index of actual sales relative

to planned sales rose from 35.1 to 38.1. By country, Italy recorded the

worst performance against targets for the ninth successive month, while

France and Germany posted shortfalls of similar strength. By sector across

all countries, targets were again missed for all main sales categories. The

extent of the shortfalls ranged from a very modest disappointment for food

& drink to a particularly wide margin in the autos & fuel sector.



    Expected sales against targets next month -- overall pessimism

surrounding August



    On average, retailers in the Eurozone expected sales to fall below

target in August. The expectations index slumped to 49.5, from 52.4. German

retailers were more pessimistic than their French counterparts while, in

contrast, Italian retailers expect targets to be beaten next month. By

sector food & drink retailers anticipate targets to be beaten in August,

with the worst performances forecast in autos & fuel and clothing &

footwear respectively.



    Employment -- rate of job shedding unchanged on June



    Retail sector employment fell for the fourth month running in July,

with the rate of job losses unchanged on June's twenty-eight month record.

The employment index held steady at 48.6. All three countries registered

shrinking retail workforces, with French retailers reporting the steepest

rate of decline (and posting the largest monthly fall since January 2006).

In Italy, headcounts at retailers fell for the seventh consecutive month.

Retail staffing levels were also trimmed in Germany, but very slightly.



    Retailers' buying and stock trends -- subdued retail buying led to

slower growth of stocks



    The value of goods purchased for resale by Eurozone retailers rose

marginally in July, reflecting the need to keep stock levels low in the

face of uncertain economic conditions and weak sales forecasts. The index

of purchases registered 50.4, up from 49.8 in June. Higher purchases of

stock in France and Germany were largely offset by a further sharp decline

in Italy. The level of unsold retail stock rose at the weakest pace since

last September, mainly as a result of recent subdued purchasing activity by

retailers. The stocks index fell from 54.5 to 52.1. Germany saw the slowest

growth, followed by France. In Italy, a robust increase in inventories

reflected expectations of sales beating targets in August.

    About Bloomberg



    Bloomberg is the leading global provider of data, news and analytics.

The BLOOMBERG PROFESSIONAL(R) service and Bloomberg's media services

provide real-time and archived financial and market data, pricing, trading,

news and communications tools in a single, integrated package to

corporations, news organizations, financial and legal professionals and

individuals around the world. Bloomberg's media services include the global

BLOOMBERG NEWS(R) service with more than 2,300 professionals in over 130

bureaus worldwide; the BLOOMBERG TELEVISION(R) 24-hour business and

financial network produced and distributed worldwide on eleven separate

channels in seven languages; and BLOOMBERG RADIO(R) services which provide

up-to-the-minute news on XM, Sirius and WorldSpace satellite radio around

the world and on WBBR 1130AM in New York. In addition, Bloomberg publishes

BLOOMBERG MARKETS(R) magazine and BLOOMBERG PRESS(R) books for investment

professionals. For more information please visit http://www.bloomberg.com.