Italian manufacturing in decline, a guide to business cycle indicators

In August 2026 Istat's manufacturing production index fell by 0.6% compared with July and by 1.9% compared with August 2025. According to Eurostat data for July, the latest available for all European countries, the Italian index stood about 6% below its 2021 level, below the euro area level and above that of Germany. Reading these values correctly requires an understanding of how the index is compiled, what its limitations are and which indicators should be read alongside it.

What the industrial production index measures

Istat's industrial production index measures changes in output in volume terms, that is, net of price changes. For most of the goods surveyed, companies report the physical quantities produced, for example the number of cars for each model. These goods account for about 70% of the index. For the remaining goods Istat uses either deflated production value, which accounts for about 19%, or hours worked, which account for about 11%. The survey is compulsory for the selected companies. Between 2021 and 2025 the weighted response rate at first release averaged 95.5% (Eurostat, 2026a).

Photo: Leeroy, StockSnap (CC0).

The sample is a panel, that is, a fixed group of companies that responds to the same survey every month. In 2026 it comprises about 4,600 companies, which report just over 7,800 monthly production series, one for each good surveyed at each company. Manufacturing accounts for about 90% of the general index. The remaining share is made up of mining and quarrying and of electricity and gas supply (Istat, 2026a).

Istat publishes the index on average 40 days after the end of the reference month. The figure for the latest month is provisional and is revised in the following month's release, which incorporates late responses received after the first release. Once a year Istat also revises the previous year's series in order to update the sectoral weights in the general index (Eurostat, 2026a).

The survey covers companies with at least 20 employees. For each good, Istat ranks companies by their share of the production value of that good and includes the largest until 70% of that value is covered. Smaller companies are therefore not surveyed directly (Eurostat, 2026a).

How to read the monthly figure

In Istat's release the month-on-month change is calculated on seasonally adjusted data, which are corrected for effects that recur at the same time every year, such as the summer holidays. The year-on-year change is calculated on calendar adjusted data, which are corrected for calendar effects such as differences in the number of working days. Alongside the monthly figure, Istat reports the change in the average of the last three months compared with the previous three (Istat, 2026a).

The headline figure in the release refers to the general index, which also includes mining and quarrying and electricity and gas supply. In August 2026 the general index fell by 1.3% compared with July, while the manufacturing index fell by 0.6%. For the comparison with August 2025 Istat reports two year-on-year rates of change for the general index. On unadjusted (raw) data, that is, without seasonal or calendar adjustment, the index rose by 3.1%. On calendar adjusted data it was unchanged. The difference between the two rates reflects the difference in working days, 21 in August 2026 and 20 in August 2025 (Istat, 2026d).

The conditions for comparing countries

The Italian index is compiled according to European definitions, and its legal basis is Regulation (EU) 2019/2152 on European business statistics, which applies to all Member States (Eurostat, 2026a). Eurostat publishes national manufacturing indices with the same classification of economic activities and the same base year (2021), seasonally and calendar adjusted (Eurostat, 2026b).

A fixed-base index with 2021=100 measures each country's production relative to that country's own average level in 2021. A value of 94 indicates that production is 6% below that level and provides no information on the size of that country's manufacturing sector relative to the others (Eurostat, 2026b).

Italian manufacturing in recent months

According to Istat, in August 2026 the manufacturing production index fell by 0.6% compared with July on seasonally adjusted data and by 1.9% compared with August 2025 on calendar adjusted data. In the June-August average it declined by 1.1% compared with March-May. In the first eight months of 2026 it was broadly unchanged relative to the same period of 2025, up 0.1% (Istat, 2026d).

Compared with August 2025, on calendar adjusted data, the sharpest declines among manufacturing sectors were in textiles, clothing and leather (-14.0%) and chemicals (-11.4%). These were followed by computer, electronic and optical products (-9.9%). The largest increase was in other manufacturing (+2.0%), which includes the repair and installation of machinery. It was followed by transport equipment (+1.0%) (Istat, 2026d).

Italy in the European comparison

On the basis of Eurostat data (2026b), the comparison can be made up to July, the latest month for which indices are available for all countries. From September 2025 to July 2026 the Italian index remained between 93.0 and 94.6. Manufacturing production therefore stayed between about 5% and 7% below its 2021 level. On the basis of quarterly averages, the index fell by 0.2% in the first quarter of 2026 and rose by 0.4% in the second.

Manufacturing production index (2021 = 100), seasonally adjusted data. Source: Eurostat, teiis090, data updated 2 October 2026. Chart by Procedo; Eurostat is not responsible for it. Licence CC BY 4.0.

In July the Italian manufacturing index stood at 93.9, against 98.7 for the euro area. The Italian index was above that of Germany, which stood at 90.3, its lowest value between September 2025 and July 2026. The indices for France and Spain were above their 2021 level, at 102.6 and 103.9 respectively (Eurostat, 2026b).

In 2026 manufacturing production in the euro area was more volatile than in Italy. In terms of quarterly averages, it fell by 1.2% in the first quarter and recovered by 1.1% in the second. In July the euro area index fell by 0.3% compared with June and the German index by 2.3%. In the same month the Italian index rose by 0.3% (Eurostat, 2026b).

Complementary indicators

The August production index is the most recent quantitative measure of Italian manufacturing activity. Other indicators complement its interpretation, but they measure different quantities and do not always refer to the same month. Among them, the industrial turnover index, compiled by Istat and available up to July, measures companies' actual sales rather than their output. It is published in both value and volume terms. The value series can rise as a result of price changes alone (Istat, 2026b).

In July 2026 industrial turnover in value terms was 4.8% higher than in July 2025, while in volume terms it was 0.6% lower. In volume terms, domestic turnover fell by 2.0% and non-domestic turnover rose by 1.9%. In the May-July average, compared with the preceding three months, turnover rose by 1.0% in value terms and fell by 0.7% in volume terms (Istat, 2026b).

Turnover is complemented by Istat's business confidence survey and by the Purchasing Managers' Index (PMI). These are the most timely indicators. They capture companies' qualitative assessments rather than quantitative measures. Each month the confidence survey asks manufacturing companies to assess order books and stocks and to report their production expectations (Istat, 2026c). An Istat study matched these assessments at company level with the actual turnover of the same manufacturing companies between 2005 and 2019 and found a good degree of consistency between the two sources (Margani, Orsini, 2020).

Components, limitations and recent values of the PMI

S&P Global's PMI is based on a monthly survey of purchasing managers at about 400 Italian manufacturing companies. Each respondent reports whether new orders, output, employment, suppliers' delivery times and stocks of purchases, that is, purchased materials held in inventory, have increased or decreased compared with the previous month. The headline index is a weighted average of these five components. A value above 50 indicates an improvement on the previous month. The index is published at the beginning of the month following the reference month (S&P Global, 2026a).

One limitation is identified in an analysis by the European Central Bank (ECB) of the euro area composite PMI, which also includes services. The index records how many companies report a change without measuring its magnitude. In periods of high volatility, such as the pandemic, its accuracy declined (de Bondt, Saiz, 2024).

A further limitation concerns suppliers' delivery times, a component whose sign is inverted in the calculation of the index. Longer delivery times therefore raise the PMI. They usually signal demand in excess of suppliers' capacity. They may, however, also reflect supply bottlenecks, such as shortages of raw materials or shipping delays. In that case the PMI rises without any increase in demand. For this reason the headline index should be interpreted together with its individual components (S&P Global, 2026b).

In August the Italian manufacturing PMI fell to 49.6, below the 50 threshold for the first time since January. In September it rose back to 50.4, while the euro area PMI rose to 52.9, its highest value since May 2022. All eight countries in the survey recorded values above 50 and Italy ranked last (S&P Global, 2026a).

Only the increase in employment and the lengthening of delivery times contributed to the Italian PMI's return above 50, while output and new orders declined. According to S&P Global (2026a), in September the conflict in the Middle East continued to disrupt supply chains.

A closer look at the bullwhip effect

New orders and stocks of purchases, which together account for 40% of the PMI (S&P Global, 2026a), are the variables studied by Lee, Padmanabhan and Whang (1997) in their work on the bullwhip effect. Procter & Gamble had found that orders for nappies placed by distributors varied more than fluctuations in consumption could explain, even though babies use them at a steady rate. According to the authors, the variability of orders can exceed that of sales and tends to increase moving up the supply chain, from the shop to the factory. Among the causes, they point to the fact that each company treats its direct customer's orders as demand, orders in batches and, when it fears shortages, requests quantities above its requirements.

Photo: Headlock0225, Wikimedia Commons, licence CC BY-SA 4.0, cropped.

The ECB described a bullwhip effect in euro area manufacturing during the 2021 recovery. With high demand and uncertain supplies, companies built up precautionary stocks of materials and in some cases inflated their orders relative to actual requirements. In the same period the euro area manufacturing PMI recorded an accelerating build-up of stocks (Andersson, Le Breton, 2022).

Forthcoming releases

Istat will publish industrial turnover for August on 28 October (Istat, 2026b), the business confidence survey for October on 29 October (Istat, 2026c) and industrial production for September on 11 November (Istat, 2026d).

Sources

• Istat (2026a): Produzione industriale, luglio 2026, press release and methodological note, 10 September 2026.
• Istat (2026b): Fatturato dell'industria e dei servizi, luglio 2026, press release, 29 September 2026.
• Istat (2026c): Fiducia dei consumatori e delle imprese, press releases of August and September 2026.
• Istat (2026d): Produzione industriale, agosto 2026, press release, 9 October 2026.
• Eurostat (2026a): Industrial production (volume) index, Italy, reference metadata (Euro SDMX Metadata Structure, sts_ind_prod), updated 12 June 2026, accessed 5 October 2026.
• Eurostat (2026b): Production in industry - manufacturing [teiis090], seasonally adjusted monthly indices (2021=100), data updated 2 October 2026.
• Margani, P., Orsini, D. (2020): L'indagine sulla fiducia delle imprese manifatturiere e l'indagine sul fatturato e ordinativi dell'industria a confronto, Istat Working Papers no. 5/2020.
• de Bondt, G., Saiz, L. (2024): Is the PMI a reliable indicator for nowcasting euro area real GDP?, ECB, Economic Bulletin no. 1/2024.
• S&P Global (2026a): S&P Global PMI Settore Manifatturiero in Italia and S&P Global Eurozone Manufacturing PMI, press releases, 1 October 2026.
• S&P Global (2026b): Purchasing Managers' Index (PMI) data, FAQ, accessed 5 October 2026.
• Lee, H. L., Padmanabhan, V., Whang, S. (1997): Information Distortion in a Supply Chain: The Bullwhip Effect, Management Science, vol. 43, no. 4, pp. 546-558; popular version by the same authors, The Bullwhip Effect in Supply Chains, MIT Sloan Management Review, 1997.
• Andersson, M., Le Breton, G. (2022): The role of the inventory cycle in the current recovery, ECB, Economic Bulletin no. 2/2022, box.