Italian IP Perks Up

Italy's industrial production gained 0.9% in May, reversing a 0.7% drop in April. IP growth in Italy has been a very steady and solid at 3% or better over 12 months and six months; however, having stepped up to a 5.6% pace over three months.

The step up in output is led by capital goods output and consumer goods output. Capital goods output is up to a 12.9% annualized pace over three months with consumer goods output up to a 9.1% pace. This strength is offset by intermediate goods where output is actually on a contracting run and decelerating with a decline at a -2.6% annual rate over three months.

The quarter-to-date results echoes these trends with capital goods output up at a 10.3% annual rate, consumer goods output up at a 6.1% pace and intermediate goods bringing up the rear on a 0.7% gain.

Transportation equipment has had a firm trend, accelerating to a strong gain of 15% at an annual rate over three months. The output of transportation equipment is up at a 4.6% pace in the quarter-to-date.

Italian industrial orders data are only up-to-date through April. But even on that timeline, orders are not showing a lot of momentum. Over three months ended in April, Italian industrial orders are flat. Orders are only up 4.2% over 12 months. Orders are led by domestic strength with a 12-month gain of 5.6% compared to 2.5% for foreign orders. Neither foreign nor domestic orders are strong over three months.

While Italian IP is doing well and thriving based on domestic demand, retail sales growth in Italy is not strong nor is it gaining momentum. Consumer confidence has been in a long slow slide as well. Despite those trends, business optimism is still on the rise.

On balance, Italian IP seems in good shape on solid trends. However, output is not well underpinned by orders and consumption trends have been faltering, a potential problem for a sector being importantly boosted by domestic demand.