The Italian manufacturing sector continued its solid start to 2010 in February, although the speed of recovery slowed fractionally since January. The modest overall improvement was driven by a solid rise in production volumes at manufacturing plants, and a modest increase in new orders. In both cases, however, rates of expansion slowed on January. Higher output and new orders also mask underlying headwinds facing the recovery. Job losses continued to mount, and input price inflation soared to an 18-month high.
The seasonally adjusted Markit/ADACI Purchasing Managers’ Index (PMI) – a composite indicator designed to provide a single-figure snapshot of manufacturing performance – registered 51.6 in February. Although this was fractionally down from 51.7 in January, the index signaled an overall improvement in conditions for the fourth successive month.
Production volumes across Italy’s manufacturing sector rose for the fifth month in a row during February, although the pace of expansion eased marginally from January’s twenty-nine month peak. Survey respondents largely indicated that the ongoing economic recovery, and resultant rise in new orders had been the key factor increasing output.
Improving confidence in the sustainability of the recovery, coupled with reports of client restocking were provided by Italian manufacturers as key factors underpinning the latest rise in new business. The volume of new orders received by firms operating in Italy’s manufacturing economy has risen in each month since October last year.
The level of new business received from export markets rose at a broadly similar pace to that seen for overall new orders in February. Export orders have risen continuously for the past four months. Survey respondents linked the increase to improving demand in key export nations.
February data signaled another reduction in headcounts in the manufacturing sector, thereby extending the current period of staff cuts to over two years. Although the pace of job shedding slowed since January, it remained sharp. Firms reported that despite higher activity and new orders, spare capacity meant that workforces remained larger than demand warranted, as highlighted by a 31st straight depletion of backlogs.
Average prices paid for manufacturing inputs rose for the sixth successive month during February. Furthermore, the pace of input price inflation accelerated to an 18-month high. Firms attributed the rise to higher raw material costs and the depreciation of the euro against the U.S. dollar. There was also evidence that mounting supply chain pressures had caused inflation. Despite this, intense competition forced manufacturers to discount charges for the seventeenth month in a row.
Commenting on the Italy Manufacturing PMI survey data, Andrew Self, economist at Markit, said: “The recovery in the Italian manufacturing sector continued in February. However, rates of expansion of output and new business eased. Much of the moderation in output growth came from the consumer goods sector, where expansion slowed to near stagnation. This will raise further questions regarding consumer sentiment and spending in the domestic market as job losses and inevitable labor market uncertainty continue to mount. Intense competition has forced down charges. This, combined with growing supply chain pressures and consequent rises in input prices calls into question the ability of manufacturers to turn higher output into greater profits.”
