Thursday, February 3, 2011

3/02/2011: Services PMI for Ireland

NCB released their PMI for January for Irish Services sector. Headline news is good:
  • After contracting in December, Irish Services sector showed modest growth, signaled by PMI rising to 53.9 (up from December contractionary 47.4)
  • January reading of 53.9 was ahead of 12 months average of 51.5 and well ahead of Q1 2010 reading of 47.6
  • January 2011 reading, however was below Summer 2010 peak readings of 55.4 and 55.7 in June and July

Or over the entire series history:
And a more recent snapshot with the core driver of increase:

New business orders have actually fallen in January, with a reading of just 47.7, marking 5th consecutive month of declines. 12-months average was 50.0 but Q1 2010 reading average was 47.1, so realistically speaking, the latest reading is not an improvement.

Historically, you can see where we are from here:

Other sub-components showed weaknesses, with exports orders being trend breakers and the driver of the positive improvement in overall PMI reading:

Hence:, quoting from the NCB report:
  • New Export Business In contrast to the trend seen for overall new business, new export orders rose markedly over the month, with the UK a key source of new work. New export business has now expanded in the sector in sixteen of the past seventeen months
  • Backlogs of Work Falling new business alongside increased activity led to a further reduction in backlogs of work during January, extending the current sequence of depletion to forty-one months
  • Providers expect economic conditions in Ireland to improve over the coming year, leading to higher new business and subsequently increased activity. According to respondents, export markets will remain a key source of growth over the year. The level of optimism in the service sector improved to the highest since last September
  • Input cost inflation accelerated over the month, but remained much weaker than the long run series average. Where input prices increased, panelists mentioned higher fuel costs as well as rising taxes [My comment - the wedge between input and output prices points to severe pressures on services providers' margins]
  • Irish service providers were unable to pass on higher cost burdens to their clients during January. Intense competition was the main factor leading firms to cut charges, which fell at a substantial pace that was steeper than that seen in the previous month
  • Profitability at Irish services companies continued to decline over the three months to January, extending the current period of decline to thirty-seven survey periods. Moreover, the pace of reduction was the sharpest since the three months to February 2010, with panelists reporting a combination of lower sales and strong competition
  • Employment continues to be a bad performer with jobs losses continued
So on the net Services have jumped into expansion zone, but the recovery at the very best is jobless and volatility of the series implies that it will take several months of continued robust improvements in index sub-components to provide comfort in the sector improvements overall:

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