Wednesday, May 1, 2013

1/5/2013: Not pretty and getting uglier: Irish Manufacturing PMI April 2013

Another unpleasant print of NCB Manufacturing PMI for Ireland was out today, marking broad-based, deepening contraction for the second month in a row and for the third month in last four.

Here are top figures:

Overall Manufacturing PMI declined to 48.0 in April 2013 from 48.6 in March, marking second consecutive monthly fall and reaching the lowest level since September 2011. It is worth noting that the current reading is statistically significantly below 50.0, but that the last two months of decline came on foot of 12 months of consecutive expansions through February 2013. Nonetheless, 3mo average through April 2013 is now down to 49.4 against 3mo average through January 2013 at 51.4, and current 3 mo period marks the lowest average reading compared to same period 2010-2012.

Overall, recovery was short, shallow and predominantly trending down, with most significant sub-indicators now below 50. As chart above shows:

  • Output index contracted sharply from already statistically significant contraction of 48.1 in March 2013 to 46.5 in April. 3mo average through April is at 48.6, with April reading being the lowest recorded since August 2009 and previous 3mo periods average through January 2013 at 52.2, a 3mo average swing of massive 5.7 points. Current 3mo average is the lowest (and the only one below 50) for any same-period reading from 2010 through 2013.
  • New Orders sub-index fell to 48.4 from 49.1 in March, with 3mo average through April at 49.4, below 3mo average through January 2013 at 50.8. New Orders are currently running at the fastest rate of contraction since January 2012.
  • New Export Orders index posted slower rate of contraction at 49.2 in April, compared to brisk decline of 47.6 recorded in March 2013. 3mo average through April 2013 is at 49.0 against 3mo average through January 2013 at 52.2. In Q1 2013, New Export Orders index was running on average at 49.53, so the current index reading signals continued slowdown on the Q1 already poor showing, same as with New Orders sub-index.
Structurally over time, both New Orders and New Export Orders are on downward momentum sub-50 and are seeking confirmation to the downside:

Input prices and output prices are trending down, but inputs are still inflating, while outputs are still deflating, which means profit margins continue to shrink, albeit at moderating pace, compared to March 2013:

Of course, profit margins here are relative, since much of our Manufacturing PMI is skewed to reflect MNCs activities. These activities - as I wrote before - are predominantly on transfer pricing side, so booking higher inputs costs against lower output costs improves tax arbitrage.

In the chart above, Employment sub-index posted a worrying two-months consecutive slip:

  • Employment sub-index fell to 46.9 in April from already steeply contractionary 47.2 in March. April marks the lowest sub-index reading since September 2011. 3mo average through April is at 48.9 against 3mo average through January at 52.1 and Q1 average of 49.8. Reminder: Q3 and Q4 2012 saw employment sub-index averaging 52.8 and 52.9 respectively, which implies a swing of 5.9 points to April 2013 from the end of 2012.

Lastly, my own Composite Current and Forward indices, re-weighting exports contributions and profitability conditions into overall PMI:

  • Composite Current conditions indicator fell to 47.2 in April from 48.3 in March, with April reading statistically significantly below 50.0. The deterioration is broad on 3mo average basis and quarterly averages basis. The index is now at the lowest reading since August 2009!
  • Composite Forward conditions indicator posted another (second consecutive) monthly contraction at 48.8 in April, which is marginally shallower than 48.4 contraction in March 2013. The reason for this is that the index is clearly tracking some of the forward activity, suggesting that conditions will ease slightly in months to come, but will remain in the 'negative headwinds'.

With both Current and Forward Composite Indices tracing close to (and even breaking) the lower bound of statistical significance, Irish Manufacturing activity seems to be heading for some rougher seas in months ahead. Granted, volatility can easily return things back above 50, but the dynamics overall are not pretty.

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