Having covered Services and Manufacturing PMIs (see links here: http://trueeconomics.blogspot.ie/2013/10/3102013-services-and-manufacturing-pmis.html) in terms of Q3 2013 averages, let's have a reminder as to the links to actual growth in Irish GDP and GNP these series have.
Two charts covering through Q2 2013:
- Changes q/q in Manufacturing PMIs have only a weak correlation with actual real (constant prices) GDP and GNP changes q/q: R-squares of just 35.6% and 29.4% respectively when we remove the constant factor (which is not significant by itself at any rate). This is weak to say the least.
- Changes q/q in Services PMIs have only a very weak correlation with actual real (constant prices) GDP and GNP changes q/q: R-squares of just 16.4% and 17.6% respectively when we remove the constant factor (which is significant). This is very poor.
- With positive intercepts of 0.0023 for GDP and 0.0024 for GNP, the Services PMI R-square rises to 23.7% for GDP and 22.7% for GNP. Once again, no change to the above conclusion.
The above suggests that a significant component of both PMIs come from transfer pricing and not real economic activity on the ground. Or put differently, the PMIs are not that exceptionally meaningful indicators of actual levels of activity in the economy and are only weakly-significant in indicating the direction of that activity.
Note: this is quarterly averages data, not much more volatile data based on monthly series. Which puts to question monthly movements in PMIs even more...