Italian industrial production, new order growth accelerated in June

Latest Purchasing Managers’ Index data indicate that operating conditions in Italy’s goods-producing sector continued to improve in June. Highlighting the strength of improvement, rates of growth in new business and production picked up following mild moderations in May. Nevertheless, they failed to match April’s respective peaks. Although workforce numbers fell for the 29th month in a row, job losses slowed to only a fractional pace. However, strong inflation of input costs remained, as supply chain pressures and rising raw material costs filtered through to purchase prices.

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 June. Up from 54.0 in May, the index signposted a solid improvement in overall business conditions.

Production volumes at manufacturing plants across Italy rose for the ninth month in a row during June, with the pace of expansion accelerating since May. Nonetheless, growth in output remained weaker than April’s thirty-five month peak. Rising demand from both domestic and overseas clients was cited by panelists as the principal driver.

In turn, survey respondents indicated that improving economic conditions (notably in key export markets), coupled with restocking at a number of clients had boosted new order levels. New orders rose for the ninth straight month during June, and at a faster pace than that posted in the previous survey period.

Reflective of the ongoing improvement in international economic conditions and the weak euro, the volume of new business received from export markets by Italian goods producers rose at the fastest pace in four years during June. A particularly strong rise was seen in the investment goods sector.

Reflecting broadly improving conditions in the sector, Italian manufacturers reported the weakest reduction in staffing numbers since August 2008, with employment numbers only fractionally down since May. Where a decline was recorded, firms indicated that temporary workers had not been replaced. A number of panelists nevertheless reported that rising capacity requirements had led them to raise headcounts.

Hiring decisions may have been impacted on by another considerable rise in average input costs, which rose for the tenth month in row during June. Although the pace of cost inflation decelerated since May, it remained considerable. Supply-chain bottlenecks (highlighted by a strong deterioration of vendor performance), rising raw material costs and unfavorable exchange rate movements all contributed to higher costs during June.

Andrew Self, economist at Markit and author of the Italian Manufacturing PMI, said: “It is encouraging to see the Italian manufacturing recovery continuing in June, with output and new order growth both accelerating to rates close to their April peaks. There is also evidence that the weakening euro is playing a supportive role with regards to exports. Despite signs that the sector has so far shrugged off any negative impacts from the euro area’s financial market uncertainties, headwinds to growth still loom large on the horizon. Weak consumer spending (highlighted by last week’s retail PMI) remains a concern, as do soaring input costs.”