Italian Service Sector Contracts at Reduced Rate

Steven Bobson, Europe & Americas Editor
September 10, 2012 /

Italian service sector output fell further during August on another decrease in new business inflows, though rates of decline in each case were slower than one month previously.

The pace of job losses, however, picked up, despite an improved 12-month outlook for activity levels. Input price inflation meanwhile climbed to a four-month high, though the rise in average costs was generally
absorbed by businesses as tariffs fell further.

Phil Smith, economist at Markit and author of the Italy Services PMI said: “August data brought some better news in the fact that activity and new business both fell at weaker rates than those recorded in July.

“Another positive sign was an improvement in firms’ expectations over future performance to the highest in five months, having hit a record low one month previously. That said, the declines in activity and
incoming new work were still marked by the historical standards of the survey, and an accelerated decline in employment suggested that firms expect operating conditions to remain challenging. Indeed, a continuation of the recent trend in input cost inflation, which has risen to a four-month high, would add more pressure to
margins and limit businesses’ scope for further output price reductions.”

The seasonally adjusted Markit/ADACI Business Activity Index – which is based on a single question asking respondents to report on the actual change in business activity at their companies compared to one month ago – posted 44.0 in August, signalling a further marked reduction in Italian services output that extended the ongoing sequence of contraction in the sector to 15 months. That said, the headline index was up from July’s mark of 43.0, and indicated the slowest rate of decline since March.

New business placed with Italian service providers also decreased at a reduced rate during the latest survey period, having fallen at the fastest pace for 40 months in July. The drop was still considerable, however, and partly attributable to lower footfall and disposable incomes, according to anecdotal evidence.

With intakes of new work down on the month, companies continued to reduce outstanding business. The rate of depletion was the slowest in five months, though still solid overall. Work-in-hand has decreased continuously over the past yearand-a-half.

In contrast to the trends in output, new business and backlogs, employment in the service sector decreased at an accelerated rate during August.

The extent of net job losses was the secondgreatest in over three years, with only April seeing a steeper decline in that time.

August data showed input cost inflation facing Italian service providers quicken for the second month running to the fastest since April. Higher staff costs, petrol prices and energy bills were all factors behind the rise in average costs, according to panel members.

Services charges nevertheless continued to fall, extending the current sequence of decline to 13 months. The decrease was more marked than during July, and was attributable to the efforts made by a number of firms to boost demand.

August saw sentiment within the service sector improve notably from the series low registered in July, when for the first time since the start of data collection businesses on balance expected a decrease in activity levels in the forthcoming year. Furthermore, the overall degree of confidence was the greatest since March.


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