Manufacturing Output in Italy Hits 3-month Low

August 01, 2012 /

Manufacturers in Italy faced a further contraction in demand that led to lower output levels and the sharpest reduction in employment for 33 months, with a sharp and accelerated decrease in backlogs of work underlining the degree of excess capacity in the sector.

The seasonally adjusted Markit/ADACI Purchasing Managers’ Index (PMI) dipped to a three-month low of 44.3 in July, down from June’s reading of 44.6. The headline index has posted below the neutral mark of 50.0 – signalling deteriorating business conditions – throughout the past year, and was below the average recorded over the second quarter as a whole.

July saw output levels at manufacturers in Italy fall markedly, and at a rate that was equal to that registered in the preceding survey period. The month-on-month decrease in goods production was the eleventh in the past year.

Where lower output levels were recorded in the sector, this was often associated by respondents with falling new order inflows. New work decreased at the slowest rate since March, though still sharply overall.

The latest contraction in new export orders was also weaker than in each of the previous three months, primarily reflecting a marked rise in
international demand for Italian-produced consumer goods.

Italian manufacturers reduced staffing numbers at the fastest rate since October 2009 during July. Anecdotal evidence signalled that businesses cut headcounts through both redundancies and the non-renewal of temporary contracts. Employment levels in the sector have fallen continuously over
the past year.

Purchasing activity among Italian manufacturers decreased at a slower rate in July, albeit one that was still sharp by the historical standards of the series. The reduction in input buying led to a further improvement in supplier delivery performance, with lead times shortening solidly on average over the month.

Anecdotal evidence indicated that the demand for materials and semi-manufactured goods fell as a consequence of lower output levels as well as efforts to reduce stocks of purchases, which were depleted at a solid and slightly accelerated rate.

Concurrently, post-production inventories also decreased, and at the steepest rate since January.

Data showed that lower purchasing activity also led to a second straight monthly decrease in input prices. Moreover, the rate of decline was the fastest for three years. Charges also decreased, though the pace of reduction was slower than in the previous month and comparatively softer than the fall in input prices.

Phil Smith, economist at Markit and author of the Italian Manufacturing PMI said: “July saw the recession in the Italian manufacturing sector extend to a year. Moreover, the downturn was shown to have deepened as the PMI sank to its lowest level in three months, primarily reflecting a sharper reduction in staffing levels. A solid and accelerated decrease in stocks of purchases also dragged the headline index lower, and suggested that firms had grown more concerned about cash flow and were not anticipating a rise in production requirements in the near term.

“Average input costs meanwhile fell at the fastest rate for three years during July, an offshoot of weaker demand for raw materials and semimanufactured goods both at home and abroad. Data showed, however, that Italian manufacturers did not take full advantage of the opportunity to boost their competiveness, and instead dropped selling prices only slightly over the month.”


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