The Bloomberg Eurozone Retail Purchasing Managers' Index , 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, fell from 48.0 in October to 45.9 in November, signaling a decline in sales for the second consecutive month. Moreover, the latest fall was the second-steepest recorded over the survey's four-year history, exceeded only marginally by the record contraction seen in May 2004 (45.4).

Supporting anecdotal evidence from survey respondents warned of economic and political uncertainty across the three major Eurozone economies in November, with reports of consumers adopting a 'wait and see' approach to spending as a slowdown loomed. High oil prices were frequently put forward as a specific concern, leading to increased fuel and energy bills and the readjustment of household budgets. High food prices were also reported to be a source of weakening consumer sentiment, while strikes in France undermined retailers' efforts.

All three countries covered by the survey posted declines in retail sales in November:

- Germany saw the steepest rate of decline of the three countries. Retail sales fell for the second month running, and at the fastest rate since May 2004 (the index fell sharply from 48.6 to 43.6).

- Retail sales in Italy also registered an accelerated rate of contraction, dropping for the ninth consecutive month and posting the second-steepest monthly fall since June 2005 (the index slumped from48.0 to 45.3).

- France saw the weakest rate of contraction of the three countries, which eased very slightly compared to October (the index rose from 47.3 to 48.8).

Eurozone retail sales in November were also below those of a year ago, with the rate of decline slightly sharper than that seen in October (though less steep than the contraction observed earlier in the year). The year-on- year sales index fell from 48.1 in October to 47.9. Year-on-year sales performance varied markedly by country, growing on an annual basis in France but declining at faster rates in both Germany and Italy.

Sales by sector

Annual sales varied considerably by type of good. Food & drink saw by far the strongest rise, registering one of the best months yet recorded by the survey as sales revenues were boosted by higher prices. Sales of pharmaceuticals also increased sharply. Of the remaining sectors, autos posted the fastest rate of decline, with sales falling at the steepest pace since March 2005. Sales of clothing & footwear and household goods were also down sharply.

Sales against targets

Sales were again well below retailers' expectations in November. The index fell from 38.3 to 37.2, registering the second-largest shortfall of sales against targets seen over the last two-and-half-years. Targets were missed to the greatest extent in Italy (where the shortfall was the greatest since June 2005), and to the least extent in France. By sector across all countries, targets were missed most significantly in the household goods and autos sectors, followed by clothing & footwear.

Retailers, on average, expect to beat sales targets in the all-important month of December, with the expectations index rising slightly from 55.4 to 55.9. Retailers in France were again by far the most optimistic about beating targets, while Italian retailers gained in confidence since November. In contrast, Germany retailers expect to miss targets on average. By sector, the strongest confidence was registered regarding sales of food & drink, followed by pharmaceuticals and clothing & footwear respectively. On the other hand, retailers in the household goods and autos sectors expect targets to be missed in December.

Prices and margins

Average prices paid for goods by retailers rose at a new survey record pace in November. The prices index rose from 66.1 to 68.5. The steepest rate of inflation was recorded in France, accelerating sharply to a new peak. This trend was followed very closely by Germany, where inflation sharpened to its second-highest in the past five years. Italian retailers saw the weakest increase in average list prices, though the pace merely dipped from October's record peak.

The steepest rise in prices by product sector was recorded in food & drink (for the fifth month running), and the rate of inflation hit a new record high. Furthermore, historically high rates of list price inflation were also seen for pharmaceuticals, household goods and autos.

In November, retailers' gross margins showed the greatest monthly deterioration since January 2006 (the index dropped from 43.3 to 42.3), linked to the combination of rising list prices and sluggish consumer demand. Margins declined at faster rates across all three countries, led by Italy.

Employment

At 50.7 in November, down fractionally from 51.0 in October, the Employment Index remained above the 50.0 no change level but signaled only a marginal expansion of the retail workforce. Higher retail employment in France and Italy was partly offset by a marginal decline in Germany.

Retailers' buying and stock trends

Stocks of unsold goods increased for the ninth consecutive month in November, showing the strongest rise so far in 2007. The index registered a nineteen-month high of 55.8, from 53.9 in October. Stocks rose at the fastest rate for nineteen months in Germany, while a sixteen-month peak was posted in France and an eleven-month high was seen in Italy.

After allowing for seasonal variations, purchasing activity amongst Eurozone retailers increased in November, with the buying index rising from 49.5 in October to 51.3. However, the overall increase largely reflected stock building in France, as purchasing fell in both Germany and Italy - where retailers sought to prevent the build-up of unsold stocks.