Monday, April 2, 2012

2/4/2012: Improved Manufacturing PMI - March 2012

Manufacturing PMI for March is out and there are some nicely positive surprises.

First off - we bucked the trend on euro area manufacturing PMIs which signal contraction. Second headline - we bucked the trend within recent months for our own PMI. Third, PMIs are volatile, manufacturing PMI is even more volatile and we have to be careful reading the 'trend'.

Details, then:

  • March PMI headline reading is 51.5 - in an expansion territory, but statistically within 1/2 Standard Deviation of 50.0. This marks the first increase above 50.0 reading since October 2011 and the highest reading in headline PMI since May 2011. Per NCB/Markit statement: "Although only slight, the improvement in operating conditions was the first in five months".
  • 12mo MA of headline PMI is now at 50.0 - meaning that on average, manufacturing activity stood still over 12 months. 3mo MA is very close to that at 49.8, which is an improvement of sorts of previous 3mo MA of 49.1. 2011 3mo to March average is 56.1 - that was reflective of robust growth reading back then. In 2010, 3mo average to March was 49.9.
  • Volatility of the series remains above pre-crisis levels - standard deviation for the series rose from 4.54 for full sample (1998-present) and 4.46 for pre-2008 period to 5.60 since 2008.

More details on the data:
  • Output sub0index posted stronger reading than core PMI index, rising to 52.8 in March from 50.4 in February and marking second month of above-50 readings. March level was statistically significant relative to 50.0. 12mo MA is now at 51.1 and 3mo MA at 50.2 against previous 3mo MA of 49.9. These series generally run above the core PMI index, with 3mo through March averages in 2010 of 51.2 and in 2011 at 59.2. The sub-index also has higher volatility than core PMIs with crisis-period stdev at 6.35.
  • New orders sub-index also hit statistically significant expansion reading at 52.7 in March up on 50.1 in February. 12mo MA is now at 49.8 and 3mo average at 49.9 against previous 3mo average of 49.0. 
  • New Export orders sub-index rose robustly to 55.1 in march from a weak contraction level of 49.7. This is a massive gain, although the sub-index is volatile. NCB analysis suggests that the reason for the rise is due to Irish economy exposure to stronger US economy, offsetting the negative forces from the euro area recession. 12mo MA is now at solid 52.5, 3mo average through March at 51.9 a small rise on 50.2 for 3mo period average through December 2011. These readings, however, are still far behind the reading of 60.4 in 3mo through March 2011 and 57.4 for 3mo through March 2010. Volatility of new exports orders sub-index is one of the highest amongst core sub-indices at 6.97 for crisis period, up on 4.99 in pre-crisis period.

Some other sub-indices:

On the net, majority of other subcomponents continue to show weakness, but all are improving in rates of signalled contraction. Backlogs of work are down again, but at a slower rate. Post-production inventories of finished goods continue to fall, but the rate of fall is moderating. Inputs purchases expanded robustly from 48.7 in February to 53.8 in March in line with growth in orders and exports.

On tow core points of employment and profitability (both will be covered in individual posts once we have Services PMI data as well):

  • Profit margins continued to shrink in Manufacturing - compounding months of deterioration, which is bad news for the sector
  • Employment sub-index reached back into growth territory at 51.2, for the first time since December 2011. 12mo MA is now at 49.6 and 3mo average is 50.0. Both are an improvement, but overall employment sub-index is not exactly a great predictor of actual jobs creation. In particular, in 2011 3mo average through March stood at 53.2 and there was no jobs creation of any appreciable quantity.

So core conclusion: cautiously, this is good news. But I must stress the point that it is only 'cautiously' so because:

  • Core index and sub-indices are volatile, and
  • The oerall trend since around June 2011 remains relatively flat and close to statistically identical to flat-line economy at 50.0

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