Latest data from the Italian manufacturing economy indicated that the ongoing recovery in the sector gathered momentum during the first month of 2010. Output rose for the fourth straight month, and at a steep pace, while new order growth accelerated. Wider fragilities nevertheless persisted. Job losses continued to mount, while firms remained unable to pass on soaring input costs to clients, as market conditions remained intensely competitive.
The latest improvement in operating conditions was signposted by the seasonally adjusted Markit/ADACI Purchasing Managers’ Index (PMI) – a composite indicator designed to provide a single-figure snapshot of manufacturing performance – posting 51.7 (from 50.8). The index has registered above the critical 50.0 no-change mark that divides improvement from deterioration in each of the past three months, with the pace of improvement accelerating throughout this sequence.
Production volumes in the manufacturing economy rose at the fastest pace since August 2007 during the latest survey period. This extended the current period of expansion to four months. Again the rise was broad-based across consumer, intermediate and investment goods industries. Survey respondents largely linked the rise in output to new order growth.
In turn, the increase in new business was linked to the continued improvement of economic conditions at home and abroad. Firms again suggested that re-stocking by clients played a part in raising demand. In January, new orders increased at the fastest pace since May 2007.
Survey respondents also reported a robust monthly expansion in the volume of new business received from abroad. Higher demand in key export markets (notably Germany) was suggested by panel members as the main factor underpinning new export order growth.
The Italian manufacturing workforce declined in January. This extended the current period of job losses to two years. Firms reported that the non-replacement of outgoing staff was the principal means of staff shedding.
Input price inflation accelerated to a sixteen-month high during January. On average, costs have risen in each of the past five months. Inflation of raw material prices was again widely cited as the principal reason behind higher costs. Respondents also indicated that capacity pressures at suppliers, alongside a second straight rise in purchasing activity, had afforded vendors greater pricing power.
Despite another steep rise in costs, intense competition amongst manufacturers continued to force down factory gate charges during January. This extended the current period of discounting to 16 months.
Commenting on the Italy Manufacturing PMI survey data, Andrew Self, economist at Markit, said: “The Italian manufacturing economy started 2010 on a positive footing, with indexes tracking trends in output and new business reaching multi-year highs, and overall operating conditions improving at the fastest pace since September 2007. However, the foundations of growth remain fragile. Job losses continued to mount, and at a faster pace than seen at the end of 2009, and reports from survey respondents continue to indicate that stiff competition is stifling their ability to pass on sharp cost rises to clients. Whilst there is no evidence of a ‘double-dip’ recession, the path of economic recovery remains uncertain.”