Italian Confidence Makes Small Bounce in May; Is It a Signal or Is It Noise?

Italian business and consumer confidence indexes both are substantially lower in May than in February before the Russia invasion of Ukraine occurred. Both business and consumer confidence eroded in March and in April; business confidence eroded further in May but consumer confidence in Italy has rebounded in May. This is a different pattern from what we've seen in Germany where confidence fell very sharply in May after more gradual erosion. The confidence figures for Italy also have much higher standings than those for Germany, indicating that Italy is showing less anxiety over the ongoing conflict and may be impacted less by adverse economic forces.

Confidence and survey metric standings The percentile standing for consumer confidence in May is at its 51.1 percentile. For business confidence, it is at the 79.7 percentile, a much higher and even firm standing. Consumer confidence is barely above its median reading; the median occurs, of course, at a ranking of the 50th percentile. And while consumer confidence is above its median in Italy, it is below its mean.

The components for confidence show us conflicted patterns. The percentile standing for the overall situation over the last 12 months is placed at 51.1%. However, over the next 12 months, the overall situation has a ranking at the 18th percentile, a much lower the expectation. For unemployment over the next 12 months, there is a 71.8 percentile standing, an extremely high reading. Household budgets for the period ahead are assessed in the 73rd percentile, a firm standing for that variable.

We see the same dichotomy in our assessment of the household financial situation with the last 12 months assessed barely above the median value at a 50.5% while the standing for the next 12 months at a 5.6 percentile standing. The future clearly is a matter of concern for in households. However, the assessments for savings in the current and future periods are roughly the same with rankings in the mid to upper 80th percentile for both. The current environment for making a major purchase has a 59% outstanding, slightly firmer than the assessment of the overall situation or for confidence overall - but that is still a relatively modest reading.

Changes since February The changes in the readings versus their levels in February show deterioration in almost all cases. The prospect for unemployment, for example, is up by 9 points; the overall situation of the past 12 months is 24 points worse while the overall situation over the next 12 months is assessed as 31 points worse. The household financial situation over the previous 12 months is 3 points worse while the assessment for the next 12 months is 17 points worse. Household savings is the lone exception to the worsening trend with the current reading 2 points better, but the future reading follows a familiar pattern and is three points worse. The environment for making major purchases in May is 12 points worse than it was back in February.

Tying things together The standing rankings in some cases are still relatively firm; yet, the outlook for unemployment is dismal and then the reduction in readings between February and May is striking and consistent. The pick-up in the readings between April and May is a curiosity and will have to be watched to see if there's any reason for it or whether it's a part of normal volatility. However, an increase of 2.7 points in consumer confidence month-to-month is a significant improvement and should have some rationale behind it.