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Is The Worst Over For The Eurozone?

  • Written by Syndicated Publisher No Comments Comments
    February 4, 2013

    Is the worst over for the Eurozone? That’s what the ECB and heads of state said at the recent economic summit in Davos.
    I offer some economic reality.

    Eurozone Sales Collapse 15th Month and Wholesale Prices Soar

    The Markit Eurozone Retail PMI® shows Eurozone retail sales downturn extends to fifteenth month in January

     Key points:
    • Rate of decline remains sharp despite easing since December
    • Sales growth resumes in Germany
    • Wholesale prices rise at fastest rate in ten months


    Markit’s Eurozone retail PMI® data for the opening month of 2013 signalled a fifteenth consecutive month-on-month decline in sales values, even after accounting for the post-festive slump in trading and a resumption of growth among German retailers.

    The three largest Eurozone economies are covered by the retail PMI surveys. The German Retail PMI hit a seven-month high and rose above 50.0, signalling a return to growth following December’s contraction. French retailers meanwhile saw another solid fall in sales at a rate broadly similar to that seen in the final month of 2012 (adjusted for seasonal influences). French retail sales have declined for a survey-record ten successive months. In Italy, retail sales fell for the twenty-third consecutive month, and the rate of decline remained severe despite easing since December.

    The rate of wholesale price inflation accelerated further in January to reach a ten-month high, linked to suppliers passing on higher raw material costs. All areas of retail posted rapid increases in suppliers’ prices except for clothing & footwear. Despite this, the value of retailers’ new purchases fell sharply, as they aimed to minimise warehouse levels in the face of weak demand. Subsequently, the value of goods held in stock at retailers declined for the fifth month running, and at the fastest rate since August 2010. Pressure on retailers’ gross margins remained intense, however, most notably in Italy.

    The combination of falling sales, rising cost pressures and a margin squeeze resulted in a
    further round of job cuts at Eurozone retailers, even after accounting for the usual post-festive reductions. Employment in the sector has fallen every month since April 2012, and the rate of decline accelerated to the fastest since last July. German retailers again bucked the trend, registering sustained workforce growth.

    Italy Retail Sales Drop 23rd Month

    The Markit Italy Retail PMI® shows further sharp drop in retail sales, despite reaching four-month high

    Key points:
    • PMI rises for second straight month, but still signals steep contraction in sales
    • Sharpest drop in purchasing activity among retailers since August
    • Wholesale price inflation accelerates to 11-month high


    January saw a further deterioration in the health of Italy’s retail sector, with decreased sales leading to another round of job cuts. Purchasing activity among businesses fell accordingly, contributing to a further reduction in stock levels. There was more bad news on the costs front, with purchases prices rising at the fastest rate in 11 months.

    Italian retail sales continued to fall at a sharp monthly rate at the start of the year, as indicated by the seasonally adjusted PMI® posting at 37.5 in January. This extended the current period of contraction to almost two years. That said, the index was the highest in four months, having risen slightly from December’s mark of 36.8.

    Germany Returns to Growth

    The Markit Germany Retail PMI® shows return to growth at start of year

     Key points:
    • Marginal expansion of retail sales during January
    • Employment growth continues
    • Wholesale price inflation highest since April 2012

    At 51.0 in January, the seasonally adjusted Germany Retail PMI recovered from the eight-month low of 47.6 posted during December. However, the month-on-month rate of retail sales growth was only marginal, in part reflecting reports by survey respondents of subdued underlying consumer demand at the start of 2013.

    …but like-for-like sales are lower than one year earlier

    The marginal rise in month-on-month retail sales contrasted with a decline on an annual basis registered during January. Latest data pointed to a moderate reduction in like-for-like sales compared with one year earlier, and the pace of contraction was the sharpest since May 2010. Moreover, the index was in negative territory for the first time in nine months.
    January sales disappoint compared to targets

    Actual sales in the German retail sector fell short of initial targets during January, as has been the case in each month since April 2012. Moreover, the degree to which sales were lower than expected was the most marked for one year.

    Margins squeezed at slowest pace since May 2011, despite sharper pace of cost inflation. Gross operating margins in the German retail sector decreased for the twenty-sixth successive month in January. Average prices paid by retailers for their purchases increased for the thirty-seventh month running, and at the sharpest rate since April 2012.

    French Retail Sales Drop 10th Month Accompanied by Sharper Drop in Employment

    The Markit France Retail PMI® shows Decline in French retail sales extends to tenth consecutive month.

     Key points:
    • Sales continue to decline at solid pace
    • Sharper fall in employment
    • Accelerated drop in purchasing


    Latest data pointed to another drop in French retail sales at the start of 2013. Falling for a tenth consecutive month, sales contracted at a solid pace during January. Purchase price inflation remained strong, maintaining pressure on gross margins. Retailers cut their purchasing activity at a sharper rate, leading to a faster decline in inventories of goods for resale. Employment meanwhile fell at the sharpest rate in five months.

    The index measuring sales versus one year ago also pointed to a sharp decrease in the latest survey period. The annual rate of contraction was the most marked since October 2012.

    French retailers signalled that the average price of their purchases continued to increase during January, which they mainly attributed to suppliers passing on higher raw material costs. The rate of purchase price inflation was similar to the strong pace recorded in December.

    The value of goods ordered by French retailers for resale fell again in January, extending the current period of contraction to 16 months. The latest decrease was the sharpest since October 2012.


    Jack Kennedy, Senior Economist at Markit and author of the France Retail PMI, said:
    “The new year failed to bring cheer to the French retail sector, with the downturn in sales extending to a tenth consecutive month in January. The deterioration in general economic conditions continues to weigh heavily on the retail sector, with consumers reining in spending and stores reporting decreased levels of footfall. There also seems to be no end in sight to the long-running theme of squeezed margins, reflecting a combination of strongly rising wholesale prices and the need to discount goods in an intensely competitive environment.”

    Worst of Everything

    • Sales are down year-over-year across the board
    • Sales are down month-over-month except for a small rise in Germany
    • Price inflation is up across the board
    • Margin squeeze across the board
    • Employment is down
    • France is sinking into the abyss
    • Italy already in abyss

    But hey … the worst is behind (or so they say).
    Read more at http://globaleconomicanalysis.blogspot.com/2013/02/french-retail-sales-drop-10th-month.html#ak6m0MIzX5mYtXaV.99

    Images: Flickr (licence attribution)

    About The Author

    Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.  Visit Sitka Pacific’s Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

    You are currently viewing my global economics blog which typically has commentary every day of the week. I am also a contributing “professor” on Minyanville, a community site focused on economic and financial education.  Every Thursday I do a podcast on HoweStreet and on an ad hoc basis contribute to many other sites.

    When not writing about stocks or the economy I spend a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com.