So things are getting better, say Comrade ‘Surreal Economist’ Cowen. Translated into human language (any human language short of North Korean) this really means that we have a terrible crisis that is getting worse at a decreasing (for now) rate. What do I mean?
Exchequer returns were bad, but they were not worse than in April. Hmmm – it only took thousands of families drowned in fresh taxes to get us this far. And add to it a ‘slowdown’ in the rate of growth in expenditure. Mr Cowen calls this ‘the right policy that is supported by the majority of economists and the ESRI’. About the only part of this assessment that I would agree with is the one which separates ESRI from economists – being a nearly purely state-paid ‘group-think tank’, ESRI is not about economics, it is about kissing the… you know what.
Back to the ‘greening’ shoots of this week… Irish PMI figures came in with a slowdown in the rate of decline… same as with the Exchequer results… again – things are not getting better, they are getting worse, but worse at a slower pace. Now, services sectors in Ireland, per PMI, shrank for the consecutive 16th month in May, as NCB’s PMI rose from 32.2 in April to 39.5 in May. If this is a glimmer of hope, it is a smile from the bottom of the ocean. Future expectations are up to 50.8 in May, which is good news, when compared to the reading of 46.6 in April, but what this means exactly, given that we are heading into summer doldrums is highly unclear. One brighter star at the bottom of the barrel was Technology, Media & Telecos (TMT) – most upbeat of all sectors. Apparently, contraction is over in the sector, per May data. I am sceptical here, since this sector just got a boost from political advertising spend, and it has contracted at an extremely fast pace in December 2008-February 2009. Furthermore, most of the spend for the TMT sector for 2009 has already been allocated, so the contraction might have overshot the target before, with a slight bounce to the low flat trend expected about now.
Manufacturing PMI came virtually with the same results as services PMI, delivering a rise to 39.4 in May from 36.1. In other words – still no expansion, or 16 straight months of contraction. Export component of PMI rose, but remains below expansion reading. “With the domestic economy so weak, look for the new export orders component of the PMI to breach the 50 mark before the headline PMI will follow suit”, NCB’s Brian Devine told The Guardian. I agree. So where does this leaves Mr Cowen’s ‘right’ policies? Oh, not far from the proverbial ‘hole’. If Mr Cowen’s policies were right, we should not be expecting our economy to be rescued by exports or in other words, if our policies were to work, they would have positive effect on domestic economy. Instead, Mr Cowen is now positioning himself to claim completely undue credit for any upturn in the global economy… after having spent last 10 months blaming the world for Irish economic troubles.
Going forward, my expectation is for a flat trend for both PMI reports with some volatility in months to come. Autumn 2009 can potentially yield another round of relatively shallow (compared to 2008) contractions, especially in services.
The real issue from now on will be what can we do with an army of unemployed, bankrupt families that is amassing in the country and how can we get out of the hole that Mr Cowen and his predecessor have forced us into.
Today’s Live Register data does not provide much of hope that the task will be easy. In May there was another 13,500 increase in numbers claiming benefits in May. It might have been the lowest monthly rise since September 2008, but we now have 402,100 on the Live Reg and we are still on track for reaching 500,000 before we can toast the New Year.
Dynamics are tough to gauge. May’s monthly rate of increase was 3.5%, down for the fourth consecutive month and the slowest pace of growth since May 2008. But there is no indication that we are not going to see another bout of accelerating growth in unemployment comes June and then September-October. One reason to note – males are still dominating the firing line (65% of all new additions to the LR in May), so at some point in time, there will be new entry by women. How do I know? Simple – since December, layoffs have been moving off the construction sector into other, more ‘gender balanced’ sectors. I many cases, employers there offered voluntary redundancies with rather generous pay-offs. Women were the most likely to take such for a number of reasons:
· Women are more willing to switch into part-time employment;
· Women are more likely to go into continued education than men;
· Women are more likely to undertake family work than men etc
So this means that there a many ‘hidden’ layoffs working their way through redundancy packages that will surface once money becomes extremely tight.
Just in case you still believe in Mr Cowen’s economic assessment, give the following fact a thought. It comes courtesy of the Ulster Bank economics team and I agree with them wholly:
“The Live Register estimate of the unemployment rate increased from 11.4% in April to 11.8% in May, a rate last seen in May 1996. Our unemployment rate forecast of 14% by the end of this year therefore continues to look realistic. While today’s figures were certainly a welcome improvement on preceding months, the numbers signing on will continue to rise in coming months, as job losses in the services sector, most notably in wholesale and retail and hotels and restaurants, in addition to layoffs in construction, are ongoing. We therefore continue to forecast that the unemployment rate will peak at 16% by the end of 2010, before falling back gradually when the economy starts to recover.”
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