HCOB Italy Construction PMI: Activity Returns to Growth Territory for the First Time in Nearly a Year

Key Findings:

• Modest rises in activity and new orders after 10 consecutive months of decline
• Employment growth slows amid subdued business confidence
• Fastest input price inflation in eight months

The Italian construction sector enjoyed a stronger performance in October as both total activity and new orders re-entered modest expansion territory. However, firms remained cautious, with expectations for output over the next year dropping to their lowest since September 2022. This was also reflected in firms’ hiring decisions as job growth slowed on the month. In addition, October saw Italian constructors burdened by increased input inflation.

The headline HCOB Italy Construction Purchasing Managers’ IndexTM (PMI®) – which measures month-on-month changes in total industry activity – entered expansionary territory in October as the index edged above the 50.0 no-change mark for the first time since November 2022. However, with the index posting 51.8, up from 49.8, the degree to which activity increased was only modest overall.

The latest rise in activity was broad-based nonetheless, with output increasing across all sub-sectors in October. Civil engineering led the upturn, as activity here increased solidly in October, with growth quickening from September to its fastest since February 2022. Commercial registered a notable improvement in activity, posting an increase for the first time since November last year. The weakest performing sub-category was housing, registering only a marginal uptick in activity.

Survey respondents suggested that activity levels had been raised to cope with higher levels of incoming new work, with October data signalling growth for the first time in three months. Furthermore, growth was the best in nearly a year, and linked to increased client interest. Contracts for restoration work due to damage caused by recent adverse weather conditions in Italy also help to support new business growth.

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Amid rising new order and continued raw material shortages, further capacity pressure was signalled by suppliers as vendor performance registered another month of deterioration. Lead times lengthened at an accelerated pace compared to September, and at a rate that was below the historic average.

Buying activity rose for a second month in October, with growth of purchasing solid and the best since May 2022.

While purchasing activity increased, constructors suffered another month of sharply rising operating expenses in October, with inflation hitting an eight-month high. Panellists continued to cite limited raw material availability as the cause of higher input prices. In addition, some firms noted that inflationary pressures intensified due to current geopolitical tensions.

Meanwhile, payroll numbers increased in October. Of those firms registering jobs growth, increased business needs for additional staff were noted. That said, the pace of jobs creation was modest and the lowest in three months, reflective in part of a subdued business outlook. Indeed, although new projects and contracts raised sentiment among Italian constructors, confidence remained subdued and well below its historical average in October, dropping to its lowest level since September 2022. The drop in sentiment was often linked to the uncertainty caused by the Superbonus.

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