IT: Business and Consumer Confidence

August 29, 2016 03:00 CDT

Consensus Actual Previous Revised
Mfg. Conf. Level 102.5 101.1 103.1 102.9
Cons. Conf. Level 110.5 109.2 111.3 111.2
Bus. Conf. Level 99.4 103.3 103.0

Sentiment in Italian business deteriorated much more sharply than expected this month according to the latest survey from Istat. At 99.4, the overall confidence measure was down some 3.6 points versus a weaker revised 103.0 in July and at its worst level since February 2015.

Morale in manufacturing declined 1.8 points to 101.1, also an 18-month low, while construction was off nearly 3 points at 123.5 and retail 4.2 points lower at 97.1. However, the most worrying performance was in services where sentiment slumped fully 5.9 points to a multi-month trough of 102.4.

At the same time, consumer confidence saw a 2 point fall and, at 109.2, posted its weakest reading since July last year. Sizeable declines were recorded in all of the major components with the national economic climate index (125.5 after 129.8) notably registering both its fifth successive drop and its steepest decrease since February. Indeed, about the only positive news was a slight firming in household inflation expectations although even here a 3 point gain to minus 27 still left the second lowest outturn in the last four months.

The August results are disappointingly soft and ominously weak ahead of the release on Thursday of August's PMI surveys. The real economy failed to expand in the second quarter and if today's data are anything to go by, the third quarter is unlikely to look much better.

The Italian statistics office (Istat) conducts business and consumer confidence surveys over the first fifteen and ten working days of each reference month respectively. These provide information about current and expected developments in key sector variables. The largely qualitative results are synthesized for each survey into a single number that provides an overall measure of sentiment. Business confidence reflects the combined results of separate surveys covering manufacturing, retail, construction and services.

If investors want to know how the business or consumer sectors are performing as they evaluate their investment decisions, they can find timely and in depth information in the latest Istat surveys. Although short-term swings can be erratic, changes in trends in confidence can contain very useful information about a sector’s underlying health well in advance of the release of the official data. Moreover, by including some forward-looking components (e.g. manufacturing orders or consumer buying intentions) the Istat surveys can also provide a potential insight into prospective developments.