Business conditions in the Italian manufacturing sector improved for the sixth month in succession during April. The principal drivers were strong gains in output and new business levels, which rose at considerable and accelerated rates. There was continued evidence that supply chain pressures continued to build across the sector, highlighted by a considerable deterioration in vendor performance. Supply chain bottlenecks, coupled with soaring raw material costs, led to the sharpest monthly rate of input price inflation since September 2000. Nonetheless, continuing job losses and backlog reduction highlight the underlying fragility of the recovery.
The seasonally adjusted Markit/ADACI Purchasing Managers’ Index (PMI) – a composite indicator designed to provide a single-figure snapshot of manufacturing performance – posted 54.3 in April, from 53.7 in March. This signaled the strongest improvement in conditions since May 2007.
Production in the Italian manufacturing sector rose for the seventh month in succession during April. Furthermore, growth accelerated to the fastest since May 2007, which panel members widely linked to rising new business levels. Broken down by sub-sector, however, latest data highlighted ongoing weakness at consumer goods producers.
The overall improvement in new business levels was often linked to a general rise in activity levels across the economy, amid further signs of economic recovery. April signaled the seventh consecutive month of new order growth, with the pace accelerating to the joint-strongest since May 2007.
Although rising at a slower rate than recorded for new business overall, Italian manufacturers saw a solid rise in new orders received from export markets during April. Ongoing economic recoveries in key export markets were widely commented on. The rise was the sixth in as many months.
The considerable increase in production volumes fed through to firms’ purchasing requirements during April. Although modest, the rise in buying activity placed further pressure on vendors supplying inputs to the sector. This, alongside a shortage of a number of raw materials, led to the sharpest deterioration of supplier performance since July 2000.
Higher pricing power at suppliers (resulting from rising capacity pressures), alongside sharp increases in wholesale raw material costs, led to a marked rise in average input prices in April. The monthly increase in costs was the second-strongest in the history of the series.
There was evidence of continued spare capacity in the sector, as backlogs of work and employment levels both declined during the latest survey period.
Commenting on the Italy Manufacturing PMI survey data, Andrew Self, economist at Markit, said: “Latest PMI data indicate that the recovery underway in the Italian manufacturing sector gathered pace during April. Firms reported the strongest rise in output since May 2007 and also posted another sharp increase in new business levels. Despite this, the underlying data indicate that the recovery remains fragile. Demand for consumer goods deteriorated, while input price inflation hit a nine-and-a-half year high. Further job losses, and continued evidence of spare capacity also highlighted ongoing weaknesses in the sector.”
