The Easter weekend has come and gone with no solution in sight to the logjam in Italian politics which leaves her rudderless in terms of a government. Back on the 27th of February I mused on whether this would be as bad as it might seem,after all has any country been governed as consistently incompetently as Italy in recent times? Also there is the example of Belgium which economically showed signs of improvement when it had no government! However the Italian economy is in a bad rut and it is the latest data on this which I wish to analyse today.
This morning has seen the release of the Markit Purchasing Managers Index for March manufacturing in Italy and it makes grim reading.
The first quarter of 2013 ended with faster rates of decline in manufacturing output, new orders and employment, confirming that the goods producing sector remained firmly in the grip of recession.
As you can see there is little cheer to be found there and the spot reading of 44.5 was below February’s already weak 45.8 (50 represents unchanged in this series) and the report goes on to tell us.
The latest reading was below the average recorded over the current 20-month sequence of contraction, and indicative of a marked deterioration in overall business conditions. (emphasis is mine).
Also I noted this section on employment.
Manufacturing employment decreased for the twentieth month running in March, as firms adjusted down their staffing numbers in accordance with lower production requirements and new order intakes. Furthermore, the pace of job shedding was the fastest since last August.
The one bright spot was that exports orders improved albeit marginally but there is a catch to that if we look at the overall series.
Anecdotal evidence highlighted particular weakness in sales in the domestic market
Thoughts immediately turn to the prospect of Italy’s economy being sucked downwards in a by now familiar Euro area austerity result.
If we probe more deeply into the prospects for Italian domestic demand then we can investigate the report for March which was released late last week.
March PMI data revealed a further marked decrease in retail sales…. Employment and purchasing activity were reduced by businesses to levels more consistent with lower sales.
The spot reading for this was an ice-cold 40.3 which is the sort of number associated with the economic debacle which is Greece. Also we see that the problem has become persistent or perhaps to use a modern official idiom it is “temporary”.
The headline number has posted below 50.0 – signalling contraction – in every month since March 2011.
Also we note that this sector is also shedding jobs.
Solid and accelerated decrease in employment
So the two latest business surveys both point to weakness in Italian domestic demand and a fall in employment in March.
The official numbers
These numbers are well behind the surveys above but we see that they do agree.
In January 2013 the seasonally adjusted industrial new orders index decreased by 1.4% with respect to December 2012 (-3.0% in domestic market and +1.3% in non-domestic market). …..In January 2013 the unadjusted industrial new orders index decreased by 3.3 per cent with respect to the same month of the previous year.
There is an attempt at sugar coating there by switching to the unadjusted series in the year on year comparison as there was an extra working day in January 2013 but even so we are headed downwards.
Also output had already fallen.
The calendar adjusted industrial production index in January 2013 decreased by 3.6% compared with January 2012
We see that the official reading backs up the survey above.
In March the confidence climate index decreased from 86.0 to 85.2
Also we see the cause is that further economic weakness is expected.
The drop was notably explained by economic and current climate that decreased from 72.7 to 68.8 and from 91.1 to 89.2, respectively.
These series are compared to a benchmark of 2005 being 100 so the outlook here is grim and not helped by the fact that further rises in unemployment are expected.
Here again we see the same pattern.
In January 2013 the seasonally adjusted retail trade index decreased by 0.5% with respect to December 2012 (-0.6% for food goods and -0.4% for non food goods). The average of the last three months compared to the previous three months decreased by 0.8%.
The unadjusted index fell by 3.0% with respect to January 2012.
We also have another sign that the going is tough as the numbers have now been rebased to compare to 2010! If they were trying to create a more positive atmosphere then the seasonally adjusted underlying numbers of 99.5 and the unadjusted one of 90.5 must both be disappointments to them.
Let me help them out as by my calculations retail sales in January were 84.8 if we use 2005 as 100.
What about construction?
Here we see another familiar drumbeat of these times.
In January 2013 the seasonally adjusted index decreased by 1.4% compared with the previous month. The percentage change of the average of the quarter November-January, with respect to the previous quarter, decreased by 6.3%.
So what in the past has been an engine of recovery is still heading downwards which gives some food for thought as Italy has not had the boom and bust in this area that Spain and Ireland had. Well not the boom anyway as we see an underlying series that in spite of being re-based to 2010 has an unadjusted reading of 66.1.
Time for a surprise?
These numbers did surprise me this morning and here they are.
In February 2013 the unemployment rate was 11.6%, -0.1 percentage points compared with January
If we look into the detail we see that on this seasonally adjusted series that unemployment fell by 28,000 in February. Also we saw that the leading indicator which is employment rose by 48,000 completing a good set of numbers.
The catch is that these do not match what other numbers tell us about the Italian economy and indeed whilst the surveys quoted from above are for March they envisage employment falls and not rises. They are more in line with the annual numbers where unemployment has risen by 401,000 and employment fallen by 219,000.
If we move to the raw data we also see a fall in February although the number of unemployed rises from 2,971,000 to 3,303,000.
So we have an element of a glass half-full or half-empty situation here as whilst I would like to believe the Italian employment situation improved in February there is the danger such a number is setting us up for one of Bob Dylan’s hits.
It’s a hard rain’s a-gonna fall.
If we move to the Euro area we see that there was a rise in unemployment overall with the unemployment rate staying at 12% so Italy outperformed her peers in February.
Back on the 27th of February I pointed out that the fundamental issue facing Italy was worsening.
This has left it with a high level of public-sector debt (127.3% of economic output) which means that it is vulnerable on this score in any future economic slowdown which is of course what it is now experiencing.
We can see that the subsequent month has seen yet more economic weakness in Italy. So we can be fairly sure that she has seen the seventh quarterly fall in economic output in a row. This puts further pressure on the debt and deficit numbers as well as further worsening the debt to economic output ratio. We also know that looking forwards the supposed Euro area cure of austerity invariably makes things worse for both the economy and the public debt position. The original austerity programme of Mario Monti was supposed to give a balanced budget this year whereas even the European Commission now forecasts a deficit of 2.1% of economic output.
However Italy does have resources as some recent data which was not what you might expect pointed out. The German Bundesbank pointed this out in a new data series that median wealth in Italy is 163,900 Euros and median wealth in Germany is 51,400 Euros. It is not the full story but it does highlight that things are not always as clear-cut as they may seem. Perhaps wealthy Italian’s might help out their poorer German neighbours?