Italian Retail Sales Stall

Claus Vistesen has already posted on how the pace of expansion of services activity in the Eurozone has been slowing for some four months now. The zones various economies generally seem to be over the peak in this cycle, lead by Germany, from where we learn today that industrial output actually declined in October. (It is worth pointing out at this stage that services activity is what we should be following most closely, since this accounts for some 70% of total economic activity).

More evidence that one swallow doesn't make a summer is to be found in today's retail sales data from Italy, since we learn that:

Italian retail sales fell the most in six-months in October as the prospect of government spending cuts and higher income taxes prompted households to shop less.
An index of retail sales stood at a seasonally adjusted 47.4 compared with 51.2 in September, according to a survey of 440 retailing executives compiled for Bloomberg LP by NTC Economics Ltd. A reading below 50 signals a contraction.

Now regular readers may remember that back in September, and hard on the heels of that important victory in the World Cup, Italian consumers were feeling very good indeed, and in particular buying a lot of cars from Fiat. I was also fairly sceptical that this optimism could be maintained in the face of a fairly complex economic and political reality. I think the way economic events are moving is more or less justifying my earlier reservations: 2006 has been a very good year in Italian terms, but here our best shot 'just isn't good enough', at least not yet it isn't:

While the dozen nations sharing the euro are benefiting from the fastest economic growth since 2000, Italy is struggling to keep up and has lagged the average growth rate of the euro bloc since at least 1992, according to Bloomberg data.

And don't miss this bit. Profitability is falling as margins are squeezed. This is a point I have been attempting to highlight in both the Fiat and the recent tourism data cases:

Italian retailers' profits were also squeezed by lower- than-expected sales, according to the report. A measure of gross profit margins had its biggest drop in seven months, falling to 40.6. That's down from September's 43.0. Thirty-eight percent of retailers said sales were worse than they had forecast for October.