Business activity in the Italian service sector expanded markedly again in March. The headline Reuters/ADACI Business Activity Index - a seasonally adjusted index designed to measure the overall health of the service economy - posted 55.2, remaining above the 50.0 no-change mark that divides growth from contraction for the ninth consecutive month. A decline in the Index from 56.1 in February, indicated that the rate of expansion of activity eased slightly compared to the previous month, but nevertheless remained buoyant. Robust growth of activity reflected further gains in the volume of new business placed with service providers, which rose for the ninth month in a row in March.
Panel companies generally reported that the implementation of new marketing strategies had enabled them to secure a rising number of contracts during the month. However, despite remaining solid, the rate of growth of new business eased from the previous month's strong pace. Higher levels of activity were also partially attributed by panel companies to attempts to clear any existing, uncompleted contracts. As a result, backlogs of work declined slightly for the second month running in March. Although March's survey found that service sector staffing levels were higher than a month earlier, the rate of expansion of employment was only marginal. Panel companies reporting to have recruited additional staff during the month generally did so to meet rising workloads and help clear any outstanding contracts. However, this upward effect on staffing levels was almost entirely offset by those panel companies reporting to have reduced the size of their workforces in attempts to improve efficiency and lower costs. Average input prices maintained a sharp upward trend in March, with the rate of inflation picking up slightly on the previous month. Almost a quarter of all service providers indicated that their input costs were higher than a month earlier, primarily as a result of increased fuel prices and rising employment costs (following the latest round of salary reviews). Intense competition again restricted the extent to which rising costs could be passed directly on to clients as charges. In fact, average prices charged fell slightly for the second month in a row. Finally, the Italian service sector maintained a high degree of confidence in March that activity levels would be higher in a year's time than at present. Increased optimism was widely attributed by panel companies to an anticipated improvement in economic conditions, which it is hoped will generate further growth of new business.
NEW BUSINESS
Volumes of incoming new business placed with Italian service providers rose solidly in March - the ninth consecutive monthly rise. Just over a quarter of all panel companies reported that their levels of new business received were higher than a month earlier, generally in response to increased marketing activity (which enabled them to secure a rising number of new clients). Nevertheless, the seasonally adjusted New Business Index fell to 52.6, from 55.0 in February, suggesting that the rate of growth eased from the previous month's strong pace.
OUTSTANDING BUSINESS
By remaining below the critical 50.0 no-change mark in March, the seasonally adjusted Outstanding Business Index implied that backlogs of work at Italian service providers had declined for the second successive month. Just over 16% of all panel companies reported that their volumes of outstanding work were lower than in February. Nevertheless, despite falling to 48.7, from 49.2 in February, the rate of decline of backlogs of work indicated by the Index remained slight.
EMPLOYMENT
The seasonally adjusted Employment Index rose to 50.7 in March, back above the critical 50.0 no-change mark, from 49.7 in February. Although signalling growth of the service sector workforce, the rate of increase was only marginal. Those panel firms reporting to have recruited additional staff during the month generally did so to meet rising workloads and help clear any backlogs of work. Nevertheless, the rate of increase in staffing levels was tempered by those panel firms reporting to have reduced the size of their workforce in an effort to increase efficiency and lower costs.///www.reuters.com