Italy Retail Sales September 2007

Italian retail sales dropped in September at the steepest rate in more than two years as economic growth visibly slows.

A seasonally adjusted index of retail sales was at 44.1 in September, its seventh consecutive contraction, compared with 47.8 in August, according to a survey of 440 retail executives compiled for Bloomberg LP by NTC Economics Ltd. The reading has stayed below 50, the level that signals a contraction in sales, since February.

Finance Minister Tommaso Padoa-Schioppa this week said the government would cut its growth forecast for next year as the rising cost of credit triggered by the collapse of the U.S. subprime mortgage market damps growth across the eurozone. Italy's economy expanded at the slowest pace in 1 1/2 years in the second quarter and growth has lagged behind the euro-region average for 11 years.

Here's the retail PMI chart, and remember, any reading under 50 means contraction.

Italian Consumer and Business Confidence

Well today it is very much "una de cal y otra de arena" as we say here in Spain (we could say "un pugno e una carezza" in Italian, but it isn't quite the same). First, the "carezza": Italian September consumer confidence unexpectedly rose this week.



The Rome-based Isae Institute's index rose to 107.3 from 106.6 in August. But I don't think we can eak out too much pleasure from this single data point, since the reading is still well down on earlier in the year, and most of the other indicators are going in exactly the opposite direction, except unemployment, of course, but I have already addressed this apparent anomaly here.


A more realistic sign of the times is to be found in the fact that the Italian government raised its debt forecast for next year at the same time as cutting its outlook for economic growth. Italy's debt is now projected to remain at 103.5 percent of gross domestic product next year, revised up from the original forecast of 103.2 percent. The figure was announced by Finance Minister Tommaso Padoa-Schioppa during a parliamentary session in Rome yesterday. He also suggested that he now expected the Italian economy to expand between 1.3 percent and 1.6 percent next year, lower than the original forecast of 1.9 percent. And from where I am sitting even this figure may well be too high, we need to see what happens this winter first.

Italy's debt is still expected to fall to 105.1 percent of GDP this year, and the deficit to 2.5 percent of GDP, at least on Padoa-Schioppa's reading it is. But we still need to see the final actual growth performance this year before we can accept this type os assertion as realistic I think. Downside risk is everywhere right now, and the growth estimates have been dropping steadily since the spring.

Now for the real shovel full of sand: Italian business confidence fell to the lowest in almost two years in September The Isae Institute's business confidence index fell to 92.2 from a revised 93.8 the last month.




In fact the whole business sector seems to be taking a very differnt view of the situation from the official government one. The euro is at record highs, and everyone, with the horourable exception of Jean Claude Trichet it seems, is crying "ouch"


The Rome-based Eurispes research institute were already saying back at the end of August that the then 2 percent GDP growth forecast of the government was way too high and that growth - and remember that was then, not now - would be more like 1.7 percent this year. As I note above Finance Minister Tommaso Padoa-Schioppa yesterday said next year's growth will not top 1.6 percent, but we have yet to see a realistic complete 2007 GDP forecast from the Italian government (realistic I say, we can all try and pretend that what is happening isn't).

To add more sand to sand, a measure of total orders in the ISAE index fell to minus 7 from minus 1 in August. Also a sub-index measuring domestic orders dropped to minus 9 from minus 4, while a measure of foreign orders remained stable at minus 7.



Changing languages for a moment, and going back to the "pugno" (what was it Casius Clay said, "float like a butterfly, sting like a bee"?) is this all now ending up as a case of sauve qui peut?

Italy Second Quarter 2007 Unemployment and Employment

According to Bloomberg this morning:

Italy's unemployment rate unexpectedly dropped to a record low in the three months through June as the economy expanded for a second year, prompting companies to step up hiring.

The jobless rate fell to 6 percent from 6.2 percent in the first quarter, the Rome-based national statistics office Istat said today. That is the lowest since 1992, when Istat began to record the figures.

This growth-driven stepping-up hiring picture - which is by no means unique to Bloomberg - unfortunately isn't quite the whole Italian labour market dynamics story, as the latest complete data set from ISTAT reveal. Let's have a look at why it isn't.

First off, Italy's unemployment rate has been declining, there is no doubt about that. Here's the chart from Q1 2004 onwards.



But how do we interpret this drop in employment? That is the question. Is there more going on here than meets the eye at first glance?

Well, if we look at the next chart for the size of the Italian labour force and the numbers of those employed, then we can see that the Italian labour force does now seem to have "maxed out" (in terms of reaching its ceiling), and may possibly even be slightly declining. At the same time the new employment creation element is very small indeed:



This position becomes even clearer if we look at the year on year changes, where we can see that the size of the labour force turned negative at the end of 2006:



The situation is particularly dramatic and preoccupying in the Italian south (the mezzogiorno), as can be seen from the following chart, the labour force actually went into decline after the second quarter of 2006:



And again, if we look at the unemployment data, we can see that the drop in the south is particularly dramatic:




This situation is extremely preoccupying, especially since the South has been receiving comparatively little immigration. It is preoccupying since it is quite simply unsustainable.


If we look at the migrant presence in Italy, we will see that this has increased considerably in the last few years:




But we will also see that the presence is very unevenly distributed, with proportionately few migrants being in the south, although, as we have noted, the active labour force in the south is contracting more rapidly:



Also, as we can see below, migrants, due to their demographic profile (the age ranges, more being male, etc), tend to have a much higher labour force participation rate than native Italians:




And again, while the economically active migrant population do have a slightly higher unemployment rate than the native Italian equivalent, the order of magnitude is not large, especially given their very high participation rates.





One of the principal problems Italy is now facing is that the number of workers in the most productive age groups is now starting to decline as a % of the total population. If we take a look at the chart for the 25 to 49 age group, we will see that this group rose steadily as a share of the total till the early years of this century. Then the proportion started to level off, and now it is just begining to turn down. 25 to 49 isn't necessarily and exact measure of the most productive group, probably 35 to 50 would be better, but it is the data we have from Eurostat, and it is a good enough measure of the extent of the problem.






If we look at part-time employment as a proportion of total employment, we will see that this has also been on the rise in Italy in recent years, and again this is not surprising in the light of the population ageing which is taking place, and what we know about the impact of this on the functioning of labour markets.



So, far from the Bloomberg story of lots of job creation and healthy economic performance being the case, if we look at the quarterly year on year chart for GDP we will see that the Italian economy has been slowing visibly since the last quarter of 2006 and may well be now heading for a recession this winter:




The position is even clearly when we come to look at the rates of growth from one quater to the next:



An examination of the retail sales chart tends to confirm this prognosis, after a spike at the end of last year, sales dropped back, and there is now virtually NO change year on year over the previous corresponding months in 2006.



The industrial output trend seems to be very similar, which a spike at the end of 2006, and output actually turning down after May 2007.



At the end of the day all I can really say about the more complete picture we can get from this data, is that it is now well past time that people stopped selling themselves pipedreams that everything is running smoothly and that the need to address the real structural ageing-related issues which Italy actually faces is getting to be more urgent by the day.

Q2 2007 GDP Growth Confirmed

ISTAT have today put the detailed data for Q2 GDP growth online. As previously reported on this blog here, Italy slowed even further in the second quarter of 2007 than it did in the first quarter, and only managed to eke out a 0.1% rise quaterter on quarter. Here is the chart:



So there is basically nothing really new here, apart from a few details like the fact that exports actually fell 1 percent, a rate of decline which was up from the revised 0.1 percent contraction in the first quarter. Consumer spending also slowed to 0.6 percent rate of growth, down from the 0.7 percent rate of the first the first three months of the year. Perhaps the best thing that can be said here is that there were no downward revisions. Of course what has changed since the time of the first release is that the global financial markets have taken a severe hammering, and this will obviously now impact the real economy. I think there must be an even bet that Italy will enter a recession over the next two quarters, in which case, perhaps people could usefully spend their time preparing their arguments for those nice gentlemen from Standard and Poor's.