Saturday, May 4, 2013

4/5/2013: Profit margins in Irish Services and Manufacturing: April 2013



Since I've been updating my database on PMI for Ireland (see Manufacturing PMI baseline results for April, as well as a post on Services PMI and a post on latest trends in employment as signalled by PMIs), it is also time to update dynamics analysis on profitability in both sectors.

Now, Services PMI survey covers profitability as a separate question, and it is reported in the post linked above. There is no comparative question in PMI for Manufacturing survey.

Over time, I have been tracking implied profitability changes in both sectors on a comparable basis as a difference between changes in input costs and output charges by the reporting firms. In a sense - it is a metric of profit margins dynamics that is comparable across both sectors.


Profit margins index for Services has declined from -14.29 in March 2013 to -16.39 in April. April reading was worse than -11.96 a year ago and worse than 12mo MA at -15.7. Dynamically, 3mo MA through April is at -15.0 which represents worsening in profitability conditions compared to -13.6 average for 3mo through January 2013 and is worse than -13.8 3mo average through April 2012.

Longer-term comparatives: since January 2012 through April 2013, Services profitability index averaged -15.31 - a rate of profit margins decline that is worse than the average rate recorded for 3 years period of January 2009-December 2011.


Profit margins in Manufacturing sectors have also deteriorated in April 2013 at -7.32, but the rate of deterioration was slower than in March 2013 when it stood at -12.04 and much slower than -22.86 rate of decline in profit margins recored in April 2012.

12mo MA is now at -11.1 and 3mo average rate was -15.2 for 3 months through January 2013, while 3mo average for February-April 2013 is at much more benign -9.9. In other words, there is moderation in the rate of margins decreases in recent months.

Longer-term dynamics are shown on the chart below in terms of 3 year averages. Since January 2012 through April 2013, Manufacturing profitability index averaged -13.83 - a rate of profit margins decline that is better than the average rate recorded for 3 years period of January 2009-December 2011 (-14.1). January 2012-April 2013, average rate of deterioration is still the second worst on the record.


An interesting aside: notice significant improvements in profitability in late 2008 - mid 2010 being exhausted in 2011-present in the Services sector and similar, but slightly differently timed changes in Manufacturing? These nicely coincide with the period of most dramatic unit labour costs declines and overall cost-competitiveness gains in the Irish economy. And, just as those gains virtually stopped in 2011-on, so did profit margins conditions improvements.
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