04/06/11: Services PMIs - detailed breakdown

The last post on latest PMIs - this time detailed breakdown of Services data. In previous post I have covered:

• Manufacturing PMIs
• Manufacturing and Services PMIs - showing relationships between Employment and PMIs (the 'Jobless Recovery' slowing down story, as well as between Exports New Orders and Employment, showing that probability of having a jobless 'growth' through exports is over 40% for both Services and Manufacturing)

So no on to detailed Services PMIs analysis.

Headline numbers:

• Overall Business Activity has improved marginally to 50.5 in May from 50.2 in April. Both readings fall within the area above 50 which signals extremely weak expansion. Since 2000, Services PMI standard deviation was 7.966, and since 2008 - the beginning of the crisis it stands at 6.839. The latest move puts Services PMI at a level below both the 12mo average of 51.9 and the 3mo average of 50.6. Previous 3mo average was 52.1, while 2010 annual average was 51.
• New Business activity index stands at 48.2 in May, down significantly on 50.6 reading in April and crossing into a full contraction territory, breaking three consecutive months of signaling extremely modest gains. 12mo average stands at 50.3 and 3mo average stands at 50.2, but what is even more disappointing is that the latest monthly reading falls below the already poor index reading for the 3 months of December 2010-February 2011 which were adversely impacted by the inclement weather.

• There's been a clear (although volatile) side-ways flat trend around zero growth in Services New Business activity for some time now - from about the beginning (Feb-Mar) 2010. And it is not changing so far.
• Next, consider prices - the signal of profit margins. These were discussed in an earlier post and I produced a new sub-index using NCB PMIs data for Services and Manufacturing profit margins conditions (see the third chart in here).
  
• Output prices have posted deeper deflation in May, falling to 43.9 from April's already deflationary 45.4. Overall, this marks 34th consecutive month of deflation in output prices.
• Meanwhile, input price inflation has moderated slightly from 55.7 in April to 54.7 in May. This marks 6th consecutive month of continued inflation in terms of inputs costs.
• It is worth noting that the traditional metrics of 'competitiveness', based on unit labour costs fail to account for the non-labour inputs costs, thus missing the full picture of declining competitiveness in the Irish economy. My index (referenced above and shown here) clearly indicates that in terms of inputs costs relative to output prices competitiveness Irish economy has been trading at zero net improvement for both sub-sectors over the entire period since September 2002.

• Employment sub-index in Services sector has posted significant deterioration in May, falling to 48.1 from 51.1 in April. April above 50 reading was the first one since February 2008 and this glimmer of hope was now firmly erased by the latest data.
• For the fans of the 'If only we were confident in Ireland' school of economic thinking, Service PMIs show the fallacy of groundless hopes. Irish businesses in the Services Sector were showing high levels of confidence (in excess of 55 and most in the 60s) since August 2009. Every month after month. They still do - May reading of 62.3 was extremely robust, although down on 66.6 in April. Oh, yes, folks - 12mo average for Confidence is now at a blistering 64.8, matched by 3mo average through May and virtually identical to 3mo average for December 2010-February 2011 64.7. 2010 March-May average was 66.7. So does Confidence translate into growth? Or does Confidence translate in jobs? I will examine this in a separate blog post below.
• Lastly - New Export Business slipped marginally from 54.6 in April to 54.4 in May. Moderate growth continues in the exports territory - the only solidly good news over the last 5 months on Services side.