Italian Industry Continued To Slump In July According to PMI

Italy's manufacturing sector contracted for a fifth straight month in July, posting its weakest performance in over six-and-a-half years and casting a deepening shadow over future growth prospects, according to the results of the latest Markit/ADACI PMI survey out this morning. The Markit Purchasing Managers Index dropped to 45.3 from June's 46.9, sinking further below the 50 divide between growth and contraction.



Order books and output both contracted at their fastest pace for over six-and-a-half years, compounded by a two-year high rate of input price inflation. In the latest PMI survey, employment contracted for the sixth consecutive month and at its fastest rate since July 2005, while input prices were the strongest since July 2006.

Italy's EU-harmonised consumer price inflation rose to a record high of 4.1 percent year-on-year in July, broadly in line with expectations and the same rate as for the euro zone as a whole despite Italy's weaker economic growth.

Italian Retail Sales Fall For The 17th Consecutive Month In July

The latest Bloomberg Eurozone Retail Purchasing Managers' Index, based on a mid-month survey of economic conditions in the euro area retail sector, rose from 44.0 in June to 46.0 in July. By remaining below the 50.0 level, the index pointed to a further fall in sales during the month despite an easing in the rate of decline from the steep pace seen in June.

Italian retail sales declined in July for the 17th month in a row as higher energy and food prices hampered consumer spending. The seasonally adjusted PMI for retail sales was at 38.2, compared with 36.3 in June.




I don't know what conclusions everyone else wants to draw from this, but to me it sure looks as if we might see the second consecutive quarter of contraction in the Italian economy in Q3, in which case Italy is already in recession.

Of the five product categories covered by the survey, food & drink retailers reported a year-on-year increase in sales revenues in July. However, gains in annual sales in part reflected higher prices rather than improvements in volumes. For the third successive month, the steepest decline was reported for autos & fuel, as deteriorating consumer confidence hit car sales. Annual sales of pharmaceuticals were marginally lower following two months of growth. The rate of increase in prices paid for goods by retailers remained elevated in July, picking up on June to register the fourth-highest pace yet recorded by the survey. The prices index edged up to 67.3, from 67.1. Purchase price inflation hit record highs in both Germany and Italy, but eased to a ten-month low in France.


Retail sector employment fell for the fourth month running in July, with the rate of job losses unchanged on June's twenty-eight month record. The employment index held steady at 48.6. All three countries registered shrinking retail workforces, with French retailers reporting the steepest rate of decline (and posting the largest monthly fall since January 2006). In Italy, headcounts at retailers fell for the seventh consecutive month. Retail staffing levels were also trimmed in Germany, but very slightly.

Italian Business Confidence At Its Lowest Level in Seven Years In June

Italian business confidence fell to its lowest in seven years in July as rising oil costs and a stronger euro damaged prospects for economic growth. The Isae Institute's business confidence index dropped to 83.5 from a revised 86.7 in June the Rome-based research center said today. That's the lowest since October 2001.



A measure of total orders fell to minus 22 from minus 18 in June, and the three-month outlook for production declined to 5 from 10. Businesses expect prices to keeping rising in the next three months, with an index measuring cost expectations increasing to 19 from 16 in June.

Italy's economy will expand 0.5 percent this year and the next, according to the most recent International Monetary Fund forceast (last week). That would be the worst performance among the world's advanced economies (there are 31 of them), as defined by the IMF: the Group of Seven countries, plus the remaining euro 15, Denmark and Sweden, plus Australia, Hong Kong, Iceland, Israel, South Korea, New Zealand, Norway, Singapore, Switzerland and Taiwan.

Meanwhile fears the once-resilient euro-zone economy could fall into recession increased today after two closely-watched gauges of economic sentiment and activity posted larger-than-expected declines.

The Munich-based Ifo Institute's German business climate index plunged to its lowest level since September 2005. Separately, the preliminary July RBS/Markit composite purchasing managers index - a gauge of activity across the manufacturing and services sector - fell to its lowest level since November 2001.

Italian Consumer Confidence Falls Again In July

Hi everyone. Well I am starting this post off in a rather unusual fashion. Since the main message in this post is rather pessimistic (consumer confidence just plummeted), I thought I would try and give things a slightly different slant, by offering my own personal dose of measured optimism. In the photo above you can see Nanni Morreti and Alessandro Gassman sitting on a park bench. The excuse for this engaging and seemingly everyday scene was the recent film by Antonello Grimaldi - Caos Calmo - which I went to see (and thoroughly enjoyed) last weekend.

Now Moretti is an individual with whom, on the surface, I would seem to have relatively little in common, since I am in no way sympathetic to his ideological stance. On the other hand, I do admire his enormous creativity, his willingness to take artistic risks, and his ability (as so well symbolised by his improvised "headquarters" in the park in Caos Calmo) to organise and mobilise the physical and intellectual space he has around him. He is, after all, an artist.

So in many ways what Moretti does in the Grimaldi film could be thought to represent a kind of metaphor for what Italy now so badly needs: a redefinition of its corporate values and a reorganisation of its institutional space. And with that little homily, now on to....



Italian consumer confidence in July slumped to the lowest since 1993, when the country was - we should note - in a recession. The Rome-based Isae Institute's index, calculated from a survey of 2,000 families, fell to 95.8 from a revised 99.9 last month. In November 1993, the 26-year-old index hit a record low of 95.4.



A sub-index measuring optimism about the broad economic situation dropped to a 14-year low of 72.2 from 81.6, Isae said today in its report. A gauge of households' perception about their short-term prospects decreased to 88.4 from 97.6.

Italian families are cutting back on spending, including putting off car purchases and eating out less, the institute said. And in June retail sales declined for the 16the consecutive month, the Bloomberg purchasing managers index showed on June 27.





Sales in what is still Europe's second-biggest car market fell 19.5 percent in June, a sixth straight monthly decline. Registrations at Fiat fell 16.5 percent in the month and the company has announced that it will temporarily shut four of its six Italian factories for three weeks between September and November because of weaker demand.

According to forecasts from both the Bank of Italy and ISAE the Italian economy will expand by only 0.4 percent this year, the slowest pace since 2003. And even this must now be subject to downside risk - ie we may even see an annual contraction, it all depends in my opinion on whether we see a rebound in Q4. Basically I will stick my neck out at this point and say that this latest consumer confidence index makes it quite probable that Italy is already in a technical recession (two consecutive quarters of negative growth). One of the charts which has impressed me most in recent days is this one prepared by PNB Paribas (in an analysis of the Spanish economy):



What we can see above is a comparison (for Spain, I simply haven't had the time to do one for Italy) of quarterly consumer confidence and private consumption with a one quarter lag (that is consumer confidence of the earlier quarter compared with actual spending in the subsequent one. As can be seen the fit is pretty close, which means that apart from the slight rebound in May we are now looking at a very dismal outlook for private spending from April through September, hence my feeling that we will see negative growth over these two quarters.