Italian manufacturing showed good growth in April

The seasonally adjusted Royal Bank of Scotland/ADACI Purchasing Managers’ Index for the Italian manufacturing industry maintained its recent broad sideways trend in April, climbing slightly from 53.8 in March to 53.9.

The PMI was driven slightly higher by sharper growth of employment and a mild build-up of purchase stocks (against a decline last month). However, the positive contributions of output and new orders eased since March.

“Despite relative stability at the overall PMI level, the composition of the survey shows that the Italian manufacturing sector is facing a slowdown in domestic demand, with new orders registering their weakest performance in almost 1.5 years,” said Alessandro Mitrovich, RBS country head for Italy. “The first increase in inventories since September 2005 seems to indicate that the slowdown in final demand is somewhat unexpected and will lead to some further slowing in manufacturing activity in the months ahead. The external sector seems to have suffered only modestly to date from the currency appreciation with exports slowing only marginally. However, the euro appreciation could still prove to be a drag on exports in the coming months. Overall, this makes us cautious about the outlook for manufacturing output in Italy.”

Production growth in the Italian manufacturing sector remained marked in April, despite easing marginally for the second month running. However, the rate of expansion of new orders was comparatively modest, as softer demand resulted in the least marked gains in new business for 1.5 years.

The strength of the euro, particularly against the U.S. dollar, contributed to a reduction in the rate of growth of new orders received from foreign clients.

Reflecting sharper growth of production than new orders, finished goods stocks increased for the first time in 19 months during April.

Purchasing activity continued to rise in April, although the rate of growth eased to a three-month low. Although purchasing rose at a weaker rate than in March, there was some evidence that firms had ordered greater volumes of raw materials than needed. Stocks of purchases increased (albeit only marginally), following a decline in the previous month.

Employment rose for the eighth consecutive month, with the rate of job creation the sharpest since May 2006.

The rate of input cost inflation faced by Italian manufacturers accelerated in April, driven by higher prices paid for raw materials such as oil and steel. While input cost inflation posted a six-month high, output prices increased at a weaker pace than in the previous month.

Backlogs of work held at Italian manufacturers were unchanged since the previous month in April, following five consecutive months of contraction.