Italy’s Business Confidence Indicator by ISAE is still dropping but not at the sort of speed that we saw in 1998 or in 2000. The downward gradient is steep enough to worry about but not as uncontrolled as in some recent past episodes. Indeed, we plot the index on a two-scale chart that suggests that period of weakening may be coming to an end. On this chart we see that rate of change lags behind the index (of necessity) and that when it stops worsening, that is a sign that the index itself may be near its bottom. In 1998, both the rate of change and the index itself bottomed at the same time. In 2001 the rate of change and the index were separated but both paused before falling and consolidating late in the year. What we see now is that the raw index is still falling but the speed of the drop is not accelerating and that is a constructive development.

Beyond the overall index and its behavior, there are its merits; its details: The survey across total industries and its components show that every component across the main industry sectors is now barely at or below its own midpoint (since January 1999) except for the reading on inventories. Inventories remain high. Overall orders are in the 38th percentile of their range, roughly the same for both domestic and foreign components.

The consumer goods sector is the weakest. Total orders are in their 13^th percentile only. Domestic orders are the relative weakest, in their 11^th percentile. Foreign orders are just above the bottom third of their range. Inventories are in the top third of their range. And production is in the 13^th percentile of its range - in some sense balanced with orders.

Italy is seeing weakness across industry. Business morale is poor. For now, the good news is that the deterioration is not accelerating.