Friday, November 4, 2011

04/11/2011: October PMIs - risk of recession rising

Continuing with the analysis of the latest PMI figures for October 2011 for Ireland, this post is looking into the relationship between employment, PMIs and exports-led recovery both over historical horizon and the latest performance. The previous two posts dealt with detailed data on Manufacturing (here) and Services (here).

Manufacturing PMI posted a rise from 47.3 to 50.1 between September 2011 and October 2011, moving above 50 reading for the first time in 5 months. However, as explained in previous post this increase does not signal expansion, as 50.1 is statistically insignificant relative to 50. At the same time, employment sub-index for Manufacturing PMI remains in contraction at 47.1 (statistically significantly below 50) for the second month in a row.

Services PMI posted a slight improvement in the rate of growth at 51.5 in October, up from 51.3 in September, but once again, given the volatility in the series, these readings are not statistically different from 50 (no growth) mark. Meanwhile, Employment sub-index of Services PMI remains below water at 46 - same reading for both October and September.

Charts below show two core trends:



The trends are:
  • Both manufacturing and Services PMIs are flatlining around 50 mark, signaling stagnation
  • Both in Manufacturing and Services, there are no signs of easing in jobs destruction

Consistent with these trends, overall Services sector has moved from the position of relative jobless recovery signalled at the beginning of 2011 to border-line recession and jobs destruction in October. Manufacturing sector has moved from the optimal growth area (jobs creation and recovery) in the beginning of 2011 to a recession in October 2011.

In addition to weaknesses in employment and overall PMIs, October figures show deterioration in exports growth, with Manufacturing New Export Orders sub-index at 49.8 and below 50 for the second month in a row (note that 49.8 is statistically not significant compared to 50) and Services New Export Business sub-index at 50.1 (down from 53.1 in September). Both sub-indices show stagnant exports performance in the sectors. Chart below shows that we are now in a recession (albeit border-line) - vis-a-vis exports-led recovery in Manufacturing and are getting close to a recession in Services.

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