Friday, January 4, 2013

4/1/2013: Irish Manufacturing PMI: December 2012

The latest Manufacturing PMI for Ireland, released this week by the NCB, reflect a number of ongoing changes that can lead to a confirmation of the new trend toward slower expansion for Q4 2012 – Q1 2013. At the same time, the overall series continued to post expansion, in contrast with all euro area PMIs – a rather impressive performance.

Hence, my top conclusions – based on the detailed analysis below – are:
  • Irish Manufacturing continued (albeit slowing in the rate) expansion reflects impressive robustness of the exports-driving MNCs, while
  • The overall strong and persistent headwinds of slower global trade flows growth and the contractions in trade within the euro area are starting to feed through to Irish manufacturing sector – a trend that can prove to be a significant drag on growth in Q4 2012 – Q1 2013.

Now to the detailed analysis:

Top line reading for PMI came in at 51.4 in December, down from 52.4 in November. December reading printed exactly at 12mo MA and below 6mo MA (52.1) and 3mo MA (52.0). 3mo MA of 52.0 for October-December is down on 52.2 3mo MA for Q3 2012, but is above Q2 2012 average (51.5) and Q1 2012 (49.8). Q4 2012 average is bang on at Q4 2010 average and ahead of 49.1 average for Q4 2011. The December reading was the lowest in 4 months.

All of this implies a weakening growth momentum with output index peaking, for 2012 at 53.1 and 53.9 in June and July, afterward slipping toward 51.7 average reading. It is worth noting that a reading above 53 is statistically significantly different from 50.0, while a reading at or below 52.2 is not significantly different from 50.0.

Output PMI fell from 54.4 in October to 53.8 in November and to 51.2 in December 2012. December 2012 reading was the first statistically insignificantly different from zero-growth 50.0 in 3 months and marked seventh month in 2012 when growth was statistically at or below 50.0. At the same time, December reading was the 8th consecutive month that output index printed above 50.0 level. All of which only makes sense when one recognizes that Output index is strongly volatile. For example, historical STDev for overall PMI is at 4.44, while STDev since January 2000 is at 4.36 and the crisis period STDev since January 2008 is at 5.43. In Contrast, Output PMI STDevs were 5.14, 4.94 and 6.04 respectively.

At 51.2, December output reading was below 12mo average of 51.7, and below 6mo average of 52.6. However, on a positive side, and statistically significantly, Q1 2012 index averaged 50.2, rising to 51.4 in Q2 2012, followed by 52.1 in Q3 and 53.1 in Q4.

While Output slowdown was marked only in December, fall off in the New Orders sub-index was much more pronounced and is signaling a longer term trend down. New Orders reading came at 50.9 (still above the 50.0 libne, but not statistically significantly different from 50.0) down from November reading of 52.1. New Orders activity peaked in 2012 in June-July and has fallen since. At the same time, in simple level terms, the index was for the tenth consecutive month above 50.0.

12mo MA for the New Orders sub-index is at 51.8, while 6mo MA is at 52.6. Q1 2012 average was at 49.9, Q2 at 52.0, Q3 at 53.3 and Q4 2012 came in at 51.9.

In contrast with sluggish bouncing along the zero growth line in the New Orders series, New Export Orders series posted surprising rise in December, reaching 53.6 (statistically significantly above 50.0) from 52.1 (not statistically significantly different from 50.0). This marked the highest reading in the series since July 2012 and allowed the sub-index to regain territory lost since August 2012. Per survey respondents, the core driver for new export orders was rising demand from the US.

New Export Orders have been steady on a gentle upward trend – based on averages and correcting for some shorter term volatility – Q1 2012 average was at 51.9, Q2 and Q3 2012 at 52.8, Q4 at 52.5. Thus, 12mo MA is at 52.5, very close to 6mo MA of 52.7.

Other subcomponents:

I will deal with employment and profit margins conditions once I complete analysis of the Services PMI in the next few days, so stay tuned.

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