Saturday, November 29, 2014

29/11/2014: Living in a Ponzi Land of Debt Overhang

An excellent interview with Daniel Stelter on the problem of debt overhang:

Worth a read.

One point I disagree with is the idea that debt mutualisation across EU states will solve the problem. It will not: the quantum of debt will not be reduced by mutualisation. We need a QE-like targeted debt deleveraging facilitated by the ECB. Not a 'warehouse for debt' but a debt furnace. 

Thursday, November 27, 2014

27/11/2014: QNHS Q3 2014: State Training & Supports vs Jobs Creation

Key summary of the previous posts covering QNHS for Q3 2014 is provided at the bottoms of the post (they are now getting longer than the posts, so I should probably end this analysis).

For the last bit, lets take a look at the unemployed numbers inclusive of the State Training Schemes (JobBridge et al) and State-Supported Employment (Live Register payments).

Official unemployment figures stood at 294,800 in Q3 2014, down 9.76% y/y (a reduction of 31,900). Official unemployment was down 22.91% on crisis peak levels (-87,600) and it was down 19.39% (-70,900) on Q1 2011 levels.

Factoring in State Training and Supports Schemes Participants, number of unemployed and those reliant on state supports for their employment stood at 381,700 in Q3 2014, down 7.74% y/y (-32,040). Compared to peak levels, this measure was down 18.08% or 84,230 and compared to Q1 2011 it was down 14.67% or 65,640.

Interestingly, there have also been significant changes in terms of self-employed.

Numbers of self-employed with paid employees rose 4.72% y/y in Q3 2014 (+4,000), while their counts were down 3.59% (-3,300) compared to Q1 2011. Numbers of self-employed with no paid employees rose 1.64% y/y (+3,700) and was up 13.15% (+26,600) compared to Q1 2011.

Now, as to the Government's claims of massive jobs creation during the Government tenure, total unemployment (ex state training schemes and programmes) fell 65,640 in Q3 2014 since Q1 2011, but 23,300 of this fall was accounted for by higher numbers in self-employment absent employees. Over 3.5 years, Government stewardship of the economy was, therefore, associated with employment-linked unemployment reduction of roughly 12,100 per annum.

(Do note, that any claim that the Government 'creates' jobs is a bit dodgy, and even more dodgy would be a claim that Government 'creates' self-employment, as the current Government has clearly shown by the record of its own policies, e.g. massive tax hikes and failure to equivalise access to supports, that it has zero interest in supporting self-employed in their business endeavours).

Summary of previous posts:
1) Unemployment is falling across all durations and all demographic (age-defined) cohorts, but the pressure of long-term unemployment is rising in the cohort of older workers (40 years of age and older)
2) Irish economy added 27,600 jobs in a year though Q3 2014 compared to Q3 2013. but only 17,300 of these jobs were private sector non-agricultural jobs. On longer-term trend: Non-agricultural Private Sector employment in Q3 2014 was 13.83 lower than 2008 average and Agricultural employment was 4.9% lower. In contrast, Public and State-controlled Sectors employment in Q3 2014 was 3.56% higher than 2008 average.
3) Ireland's participation rate remains below historical average and despite a slight improvement in Q3 2014 compared to Q2 2014, labour force participation rate remains lower than for the same period in 2013.
4) Total population over 15 years of age increased by 0.08% y/y and population at work was up 1.7% y/y (+31,000), marking a slowdown in the rate of growth from 2.17% y/y in Q2 2014 (+39,100). Since Q1 2011 some 58,500 more people are at work, although this reflects seasonal variations. Numbers of those retired from employment rose to 416,700 - up 2.76% (+11,200) y/y and up 68,400 or +19.64% since Q1 2011. Q3 2014 dependency ratio was 40.34 individuals at work to 59.66 individuals not working for various reasons and remains higher than historical average.
5) Both full-time employment and total employment accelerated in Q3 2014 compared to Q4 2013-Q1 2014 dynamics, with most of the new jobs creation taking place in the category of full-time employment. This is good news. Numbers of underemployed individuals fell. Which is another good news. However, as the proportion of total employment, full-time employment remains at the low levels. 

27/11/2014: QNHS Q3 2014: Full-, Part-Time and Underemployed

Key summary of the previous posts covering QNHS for Q3 2014 is provided at the bottoms of the post.

In this post, lets take a look at labour force breakdown by employment status.

For all persons aged 15 and older, 1,860,000 were classified as at work in Q3 2014, up 1.7% (+31,000) on Q3 2013 and up 3.25% (+58,500 on Q1 2011).

Of the above, 1,453,000 were in full-time employment, which represents an increase of 2.07% y/y (+26,100) and an increase of 5.2% (+70,000) on Q1 2011.

Part-time employment numbers rose to 387,000 or +0.6% y/y (+2,300) and their numbers were up 1.58% (+6,000) compared to Q1 2011. Of these, numbers of those claiming not to be underemployed rose 6.25% y/y (+16,100) and were up 3.36% (+8,900) on Q1 2011. In employment but underemployed numbers were down significantly in Q3 2014, falling 10.84% y/y (-13,700) and by 2.42% (-2,800) on Q1 2011.

As the result of the above changes, full-time employment as the share of total employment rose to 78.1% in Q3 2014 compared to 77.9% in Q3 2013. This is still well below the historical average of 83%.

Key conclusions: Both full-time employment and total employment accelerated in Q3 2014 compared to Q4 2013-Q1 2014 dynamics, with most of the new jobs creation taking place in the category of full-time employment. Numbers of underemployed individuals fell. Which is very good news. However, as the proportion of total employment, full-time employment remains at the low levels.

Summary of previous posts:

  1. Unemployment is falling across all durations and all demographic (age-defined) cohorts, but the pressure of long-term unemployment is rising in the cohort of older workers (40 years of age and older), 
  2. Irish economy added 27,600 jobs in a year though Q3 2014 compared to Q3 2013. but only 17,300 of these jobs were private sector non-agricultural jobs. On longer-term trend: Non-agricultural Private Sector employment in Q3 2014 was 13.83 lower than 2008 average and Agricultural employment was 4.9% lower. In contrast, Public and State-controlled Sectors employment in Q3 2014 was 3.56% higher than 2008 average. 
  3. Ireland's participation rate remains below historical average and despite a slight improvement in Q3 2014 compared to Q2 2014, labour force participation rate remains lower than for the same period in 2013. 
  4. Total population over 15 years of age increased by 0.08% y/y and population at work was up 1.7% y/y (+31,000), marking a slowdown in the rate of growth from 2.17% y/y in Q2 2014 (+39,100). Numbers of those retired from employment rose to 416,700 - up 2.76% (+11,200) y/y and up 68,400 or +19.64% since Q1 2011. Q3 2014 dependency ratio was 40.34 individuals at work to 59.66 individuals not working for various reasons and remains higher than historical average. 

27/11/2014: QNHS Q3 2014: Employed, Unemployed & Retired

Key summary of the previous posts is:

  1. Unemployment is falling across all durations and all demographic (age-defined) cohorts, but the pressure of long-term unemployment is rising in the cohort of older workers (40 years of age and older), and
  2. Irish economy added 27,600 jobs in a year though Q3 2014 compared to Q3 2013. but only 17,300 of these jobs were private sector non-agricultural jobs. On longer-term trend: Non-agricultural Private Sector employment in Q3 2014 was 13.83 lower than 2008 average and Agricultural employment was 4.9% lower. In contrast, Public and State-controlled Sectors employment in Q3 2014 was 3.56% higher than 2008 average. 
  3. Ireland's participation rate remains below historical average and despite a slight improvement in Q3 2014 compared to Q2 2014, labour force participation rate remains lower than for the same period in 2013. 

In this post, lets take a look at the QNHS breakdown by principal status.

Total population over 15 years of age stood at 3,595,600 in Q3 2014, which marks an increase of 0.08% y/y - a significant drop from 0.21% rise in Q2 2014. Compared to Q1 2014, total population over 15 years of age is down 0.1% (-3,500). In level terms, total population of age over 15 has increased 2,800 in Q3 2014 compared to Q3 2013 while in Q2 2014 y/y increase was 7,600.

Population at work stood at 1,859,500, close to Q4 2009 levels of 1,859,200 and up 1.7% y/y (+31,000). However, this marks a slowdown in the rate of growth in numbers at work from 2.17% y/y growth in Q2 2014 (+39,100). Since Q1 2011 some 58,500 more people are at work, although this reflects seasonal variations.

Unemployed numbers fell to 294,800 in Q3 2014, down 9.76% y/y which is a faster rate of decline than in Q2 2014 when numbers unemployed declined 9.67%. In level terms, the rate of decline y/y in Q2 and Q3 2014 remained identical at 31,900.

Student numbers rose 0.5% to 401,000 in Q3 2014 compared to the same period of 2013. This compares to a 0.89% decline y/y in Q2 2014. Currently, number of students is running at 0.5% below Q1 2011 levels.

Numbers engaged on home duties dropped to 470,300 - a decline of 1.63% y/y in Q3 2014, having previously dropped 1.77% in Q2 2014. Overall, there has been a dramatic drop in numbers of those engaged on home duties compared to Q1 2011 - down 11.3% or 59,900.

Numbers of those retired from employment rose once again to 416,700 in Q3 2014 - a rate of y/y increase of 2.76% (+11,200) y/y. This marks acceleration in the y/y increases compared to Q2 2014 when numbers retired grew at an annual rate of 1.61%. Since Q1 2011, numbers retired are up dramatically - rising by 68,400 or +19.64%.

Overall, numbers of unemployed, retired and other (including in state training programmes) stood at 864,800 in Q3 2014 - a decline of 2.58% y/y, but down only 100 (-0.01%) on Q1 2011.

As the result of the above changes, Ireland's dependency ratio improved slightly in Q3 2014, as shown in the chart below:

Overall, Q3 2014 dependency ratio was 40.34 individuals at work to 59.66 individuals not working for various reasons. This represents a slight improvement on H1 2014 ratio of 39.97 : 60.03. Nonetheless, dependency ratio remains higher than historical average of 42.58:57.42.

Wednesday, November 26, 2014

26/11/2014: QNHS Q3 2014: Participation and Unemployment Rates

Key summary of the two previous posts is:

  1. Unemployment is falling across all durations and all demographic (age-defined) cohorts, but the pressure of long-term unemployment is rising in the cohort of older workers (40 years of age and older), and
  2. Irish economy added 27,600 jobs in a year though Q3 2014 compared to Q3 2013. but only 17,300 of these jobs were private sector non-agricultural jobs. On longer-term trend: Non-agricultural Private Sector employment in Q3 2014 was 13.83 lower than 2008 average and Agricultural employment was 4.9% lower. In contrast, Public and State-controlled Sectors employment in Q3 2014 was 3.56% higher than 2008 average. 

Now, lets take a look at the Labour Force Participation Rate. CSO defines this as "The labour force participation rate is computed as an expression of the number of persons in the labour force as a percentage of the working age population. The labour force is the sum of the number of persons employed and of persons unemployed."

In other words, any serious improvement in employment conditions should have one of the two effects:
1) Unemployed moving into employment have zero effect on participation; and
2) New jobs added for new workers (including those previously in unemployment who have left labour force or have moved into training and are now gaining jobs or re-entering workforce) should increase participation.

What do we have in Q3 2014? Judging by the above stats on total employment and unemployment numbers, we should see an improvement in participation rates.

Based on CSO data, Q3 2014 participation rate stood at 60.4, down 0.3 points on Q3 2013. This marks an improvement on 0.5 points drop recorded in Q2 2013. Meanwhile, Unemployment rate dropped to 11.3% in Q3 2014 - a decline of 1.7 points on Q3 2013. The rate of unemployment decline slowed down in Q3 2014 compared to Q2 2014 when the rate dropped 2.1 points.

The above suggests that a significant share of the changes in unemployment is not related to jobs creation (something I will cover in a separate post).

For quarterly changes, consider seasonally-adjusted data. Seasonally-adjusted participation rate stood at 60.0 in Q3 2014, up marginally from 59.9 in Q2 2014 and marginally below 60.1 in Q1 2014. The historical average for the series is 60.7, which means we are still well below the average participation rate. Seasonally-adjusted unemployment rate posted 0.4 points drop to 11.1% in Q3 2014 compared to Q2 2014. Q2 2014 quarterly decline was 0.5 points, which suggests a slowdown in the rate of unemployment improvements in Q3 2014.

Rate of changes unemployment are shown in the chart below.

The key conclusion from the above data is that Ireland's participation rate remains below historical average and despite a slight improvement in Q3 2014 compared to Q2 2014, labour force participation rate remains lower than for the same period in 2013.

26/11/2014: QNHS Q3 2014: Employment by Broader Sectors

In the previous post I covered the issue of unemployment duration and distribution of long-term unemployment by age cohorts (see

So now, lets take a look at the sectoral distribution of jobs in the economy.

Across all economic sectors, employment numbers rose in Q3 2014 to 1,926,900 - a rise of 1.45% y/y (+27,600) which represents a slowdown in the rate of growth compared to Q2 2014 when employment expanded by 1.7%.

On a 4 quarters average, current employment levels are at 1,906,630 and this is 2.18% ahead of the 4 quarters average for the period through Q3 2013.

All good. Catch is: we are still only at slightly above Q4 2009 levels in terms of overall employment and are down 3.48% on the highest level recorded during the current crisis period. Overall levels of employment are still 9.47% below the 2008 average levels.

As I noted in previous post, there are good reasons to look at the non-agricultural private sector employment as core indicator for economic activity. Here, Q3 2014 level of employment is at 1,325,500 which is 1.32% (or 17,300) ahead of Q3 2013. The rate of employment growth in Q3 was also slower than in Q2 (1.68% y/y). Q4 2013-Q3 2014 average is at 1,302,900 which is 1.87% ahead of Q4 2012-Q3 2013 average.

Our jobs markets performance was fairly positive compared to 2010-present average as shown in the chart below, but much of this positive performance disappears once we take out public sector and agricultural jobs from the equation.

So in the nutshell, Irish economy added 27,600 jobs in a year though Q3 2014 compared to Q3 2013. but only 17,300 of these jobs were private sector non-agricultural jobs.

Agricultural employment grew by 6.19% y/y in Q2 2014 and it shrunk by 0.81% (-900) in Q3 2014. Nonetheless, 4 quarters average currently stands at 111,700 which well ahead of the 4 quarters average through Q3 2013 which stood at 100,050.

Public and State-controlled sectors employment (basically state services, health and education) stood at 491,700 in Q3 2014, representing a rise of 2.33% y/y. In Q2 2014 sector employment rose 0.8% y/y. This is one of the few sectors (and the only one of the key three super-sectors identified here) that posted accelerated growth in employment in Q3 compared to Q2. Average for the four quarters through Q3 2014 stands at 492,030 which is 1.05% higher than the average for the four quarters through Q3 2013.

Let's take a different look at the numbers. Non-agricultural private sector employment in Q3 2014 was 13.83 lower than 2008 average. All employment was 9.47% lower and Agricultural employment was 4.9% lower. In contrast, public and state-controlled sectors employment in Q3 2014 was 3.56% higher than 2008 average.

Table below summarises changes for broader set of sectors.

26/11/2014: QNHS Q3 2014: Long-Term Unemployment

As usual with QNHS release, I will be covering a number of various angles relating to the latest unemployment data in a number of posts.

Let's start with duration of unemployment.

Overall, some good news. Official unemployment numbers fell 13.2% y/y in Q3 2014 (a decline of 37,400) for all duration categories. However, the rate of decline has moderated in Q3 compared to Q2. In Q2 2014 y/y drop in unemployment was 15.4% (down 46,200), which means that Q3 unemployment decline was 19% lower than the same y/y decline in Q2.

Across all demographic groups, unemployment with duration of less than 1 year dropped 9.9% y/y in Q3 2014 (a decline of 11,300). Again, this is good news. And again the good news are slightly moderated by the fact that the rate of decline has slowed down in Q3 compared to Q2 when unemployment of duration less than 1 year declined by 14.9% (down 18,200).

Long-term unemployment (1 year and longer) across all demographic groups was down 15.7% in Q3 2014 (down 25,900). This is excellent news in general as long-term unemployment is the hardest to shift. However, the rate of decline in long-term unemployment was also slower in Q3 2014 than in Q2 2014. Another good news is that the decline in long term unemployment was concentrated in the middle-age cohorts of 25-44 year olds where long term unemployment dropped by 17.7% y/y in Q3 2014 (down 15,800).

Key relative stat here is the relative share of long-term unemployed in total pool of the unemployed. This is illustrated in the chart below:

The chart shows several interesting trends:

  • Overall share of long term unemployed amongst all unemployed has been trending down since the crisis period peak reached in Q1 2012 (63.5%) and currently it stands at 58.0%. The trend, however, is rather shallow;
  • The shallow nature of the trend in long term unemployment as a share of total unemployment is driven by one group: those aged 25-44.
  • Contrasting this, there has been a roughly volatile and sharply declining trend in long-term unemployed share of total unemployment for those aged 15-24 years of age. Much of this decline is, however, driven by the changing nature of our unemployment benefits system, emigration and state training programmes, rather than jobs creation.
  • A worrying trend is for the demographic of 45 years of age and older. Here, there is an effectively flat trend in the share of long-term unemployed relative to total number of unemployed. Q3 2014 is showing a decline in this share to 69.1%, but that is bang on comparable to Q1 2014 share and is almost identical to 69.3 share in Q3 2013.

The last bit is worth highlighting a little more. As chart below shows, we are still on a rising trend in terms of the 45 year olds and older cohorts as proportion of all unemployed by duration:

In other words, we are facing a big problem in dealing with older unemployed and especially with older long-term unemployed.

Two tables below summarise the main results for changes in y/y terms and compared to Q1 2011.

26/11/2014: Juncker Start: Making Sure No Lessons of the Crisis Have Been Learned

More debt, more guarantees, more bureaucrats-administered 'help for the real economy' - it's business as usual in Brussels with the new Commission's plans for a 'EUR300bn investment fund'.

Some details here:

And my comment here:

The problems, as I outlined in the comments on twitter and to EUObserver above, are multiple:
  1. The new fund is debt-financed with EU guarantees - and we already have plenty of these schemes which de facto reallocate more and more indirect fiscal power to the Commission extra the normal budgetary procedures;
  2. The new fund is going to be extremely leveraged - with a tangible capital base of EIB's EUR5 billion against EUR300-315 billion in disbursable funds (note: the EUR16 billion guarantee is hardly a form of capital). That's leverage levels in excess of Monte dei Paschi di Siena (currently at x54.31) - hardly an image of financial rude health and prudence;
  3. The new fund will have to be 'leveraged' against sovereign balancesheets at the time when these are already carrying massive debts. Of course, the EU will concoct an accounting trick to make sure the new debt is not counted as official Government debt, but we all know it will be;
  4. The new fund will be run by EBI - which is a de facto bunch of supra-national bureaucrats dressed up as bankers. How real is their concept of 'real economy' is - no one quite knows, but apparently EBI has been around during the crisis and made zero real impact so far. Shoving more money into it is like stuffing an old mare with oats and expecting it to run a race.
  5. The new fund priorities for lending will be driven by a combination of the EU Commission dreams of white elephants and national governments grey rhinos. Expect a usual policy prioritisation zoo with buzz words of 'knowledge', 'sustainable', 'green', 'smart', 'R&D intensive' etc flying around.

Signs of the above miracle are already in place. Take the 'investment committee' of the fund. Allegedly it will be composed of 'experts' from the member states appointed by the Commission. That is a double risk - politically appointed domestic experts counter-selected by the politically motivated EU officials. It is a prescription for double vacuum of independence. 

The experts will base their project assessments on the basis of commercial and societal perspectives. Have you ever heard of such criteria for investment in a 'real economy'? No, me neither.

Next, we have the targets. The fund is to focus its efforts on co-funding 'high risk' PPP ventures where private capital has no interest to invest in due to very low risk-adjusted returns.  How on earth can anyone call high risk PPPs a part of the real economy is a philosophical question for the good times. In the middle of a growth crisis, when resources are even more scarce, it is a question of who gets returns and who carries risks. Under  the 'pioneering' idea of Mr. Juncker, the public (EU and sovereigns) will carry risks, private investors will get returns (or higher risk-adjusted returns). It is about as pioneering as suggesting that the banks should be made whole on their losses using public insurance: the entire history of the current crisis is one Junckerian Investment Fund.

Tuesday, November 25, 2014

26/11/2014: A Chart to Illustrate the Danger of Long-Term Unemployment

Quite a powerful reminder to us all as to the extent of the damage done by longer term unemployment. Here is the US data for the probability of regaining the job based on duration in unemployment:

Ignore the numbers on the right (for now):

  • Probability of regaining a job for those with less than 5 weeks duration of unemployment is ca 35-36% currently in the US.
  • Probability of regaining a job for those with unemployment duration of 15-26 weeks (under 6 months) is roughly 18%. That's half the rate of those at the shortest end of unemployment duration.
  • Probability of regaining a job for those in unemployment longer than 53 weeks (roughly year +) is just a notch above 10%.
Another set of regularities worth noting is:
  • For all durations, probability of regaining a job after an unemployment spell is showing a downward trend since the late 1990s.
  • The steepest decline in probability of regaining the job (trend) is evident for mid-range duration.
This is scary. In effect this suggests that unemployment in the US is becoming more structural over time, despite the claims of the rising economic systems resilience and flexibility. 

Now, onto numbers on the right: these reflect how much of the gap in probability of regaining a job between the pre-crisis high and the crisis period low has been closed to-date.  Now, the author of the post is celebrating that the gap is closing. Fine by me. except do remember - the peaks referenced in the chart go back to mid-2007. Which means we are now 7 years and a quarter, or so, that the crisis has been raging and the best the US has to show is 71% gap closure for short term unemployed. This is what we today call 'the best recovery' amongst the advanced economies. Imagine how horrific it is in the 'less impressive recoveries' of other advanced economies.

25/11/2014: When Executives Abandon the Ship of Fools...

A bit of gas... same chart, one year distance.

McKinsey Global Institute regularly surveys top C-level executives and analysts as to their expectations (current and 6 months forward) for the economic conditions.

Specific question of interest is: "How do you expect your country's economy to be six months from now?"

Marking with blue line responses from the euro area and with red line responses from to full survey (worldwide) we have: a year ago responses citing improving conditions 6 months out were

And this year at the end of Q3 the responses were:

Oh dear... things are, allegedly, getting better.

25/11/2014: Fin-tech: Unraveling Retail Banking Model

My new post for Learn Signal blog on fin-tech innovation causing disruption of traditional retail banking models: 

25/11/2014: Irish Recovery: A Dreamland of Falling Wages & Rising Work Hours

More fantastic news from our 'labour cost competitiveness' fairytale economy: average weekly earnings fell 0.8% y/y to EUR671.70 in Q3 2014, just as the economy continued to recover from the blistering growth of Q2 2014.

Revised figures for the sustainably booming Q2 2014 showed earnings falling to EUR684.97 in Q2 2014 - a decrease of 1.5% y/y.

Table to summarise the latest data:

  • Average hourly earnings fell 1.4% y/y in Q3 2014. 
  • Average hours worked rose 0.6% (normally a good sign), which meant that people worked more for less. 
  • Hence average weekly earnings fell. Cheers must be heard at the IBEC and across Official Ireland as that meant the labour costs have shrunk. 
  • Except, while average hourly earnings fell 1.4% (-EUR0.29) y/y, average hourly labour costs fell only 1.1% (-EUR0.26) so workers got poorer more than economy got 'competitive'. Oh dear… beggar thy people economics at work.

CSO notes that "average weekly earnings increased in 6 of the 13 sectors in year to Q3 2014". By converse this means average weekly earnings did not increase in 7 of the 13 sectors. Kind of looks gloomy, doesn't it?

So I must get more positive on the news front. Good news is that "the largest percentage increase in the Industry sector (+3.4%) from EUR805.44 to EUR832.59. The largest percentage sectoral decrease was recorded in the Professional, scientific and technical activities sector which saw weekly earning fall from EUR792.27 to EUR750.35 (-5.3%)."

Now, wait… that last bit is somewhat puzzling if we are to assume we are operating an exports-intensive smart knowledge economy backed by 'best employment creation' by the MNCs.

Ah, never mind… here's the summary:

Over the longer range, "average hourly total labour costs decreased by 1.9% over the four years to Q3 2014 from EUR24.72 to EUR24.26 per hour. The percentage changes across the sectors ranged from -10.8% in the Education sector (from EUR40.66 to EUR36.28) to +7.6% in the Information and communication sector (from EUR31.51 to EUR33.90)."

All of which should make us only more competitive as the 'labour costs mean everything' economy, and less attractive to anyone with marketable skills. Now, lets hope companies will pick up investment on foot of all these 'savings' because it is hard for me to see how on earth these figures can be supportive of any growth in household consumption and investment.

And, of course, the above figures fly in the face of claims of robust jobs growth and rapidly declining unemployment. Just as they fly in the face of the claims that our economic growth is driven by knowledge-intensive R&D-rich innovation economy.

25/11/2014: Irish Fiscal Council: More of Troika Speak, Less of Original Insight

The Irish Fiscal Advisory Council [an independent body of sort with some relevance of sorts, if only as a 'check' on the Government] has issued its assessment of the fiscal situation in Ireland. Just in time after the Troika review. Unsurprisingly, the Council mirrors the IMF (and the Troika analysis - covered here:

Per Council:
"The Government will likely accomplish the important milestone of reducing the deficit to below the 3 per cent ceiling in 2015. The debt to GDP ratio is beginning to fall, albeit from a very high level. At the same time, economic recovery appears to be taking hold and risks to the Government’s balance sheet have subsided considerably as the outlook for both NAMA and the banking sector has improved." They wouldn't notice that debt/GDP ratio and deficit/GDP ratio were both helped quite a bit by the switch to new National Accounts classification in 2014. See Eurostat data here: Then again, Troika too 'missed' that point, so predictably, everything is down to the miracles of growth (see:

The Council shows some teeth, however, pointing the obvious: "…Budget 2015 reflects a missed opportunity to move the public finances more decisively into a zone of safety by following through on previous plans. The deficit is projected to be more than one percentage point higher in 2015 than could have been achieved if previous plans had been implemented. All else being equal, the larger deficits result in the debt level being roughly €10 billion higher in 2018 than if previous plans had been adopted."

And then there is the risk of pro-cyclicality - the new boggeyman  of European fiscal policy. In this context, "…Budget 2015 was marked by an absence of a well-specified plan for the public finances beyond 2015. Published tax revenue projections assume no change in policy despite Budget commitments to lower taxes in the coming years. Moreover, the Budget spending profiles assume unchanged expenditure after 2015, despite higher figures being set out in the Comprehensive Review of Expenditure 2015-2017 (CER 2015-2017). Expenditure ceilings have been raised again, however, the CER 2015-2017 does not adequately address how well-known expenditure pressures will be accommodated in the coming years."

Oh dear, that stuff is almost entirely Troika-speak and hardly much new. All in, this makes the Fiscal Council report if not outright redundant, at least repetitive. Which might be the point of the exercise, to keep the pressure on in hope that politically-expedient boom and bust spending and tax cutting are not making a return in Ireland ca 2015.

Good luck to all ye, hoping.

Monday, November 24, 2014

24/11/2014: External Debt Maturity Profile: Russia H1 2015-H1 2016

I covered recently Russian capital outflows data (see here: 

Now, lets take a look at the data for External Debt maturity profile for the economy. The reason for why this is of importance is that currently Russian enterprises and banks (even those not covered by the sanctions) have effectively no access to dollar and euro funding in international markets, making it virtually impossible for them to roll maturing debts. 

Chart below shows the quantum of debt maturing over the 18 months between January 2015 and through June 2016. The total amount of maturing external debt to be funded by Russian state, banks and enterprises is USD138.796 billion. 

Of this, just USD4.03 billion is Government debt (or just 2.9% of the total maturing debt). Which pretty much means there is no public debt sustainability issue in sight as the result of the sanctions no matter what debt ratings are issued to the sovereign.

A third of total external debt coming due in H1 2015 through H1 2016 is banks debt (33.6% of the total) amounting to USD46.627 billion. There is a steep curve on banks funding requirements in H1 2015 at USD20.646 billion, scaling down to USD15.19 billion in H2 2015 and to USD10.791 billion in H1 2016. All of these relate to either loans or maturing deposits, with zero exposure to debt securities. Much of it is, therefore, down to interbank lending markets.

Almost two thirds of external debt coming due over the next 18 months is Non-financial Corporate loans (USD65.311 billion or 63.5% of the total). This excludes debt liabilities to direct investors which add additional USD21.245 billion to the above total for the sector and the above total maturing debt. However, as it is written against the equity holders, these debts can be restructured separately from the direct and intermediated debts. Again, H1 2015 represents the highest burden on debt rollover/repayment with USD25.41 billion of loans maturing. This declines to USD21.1 billion in H2 2015 and to USD18.8 billion in H1 2016.

Chart below summarises:

So to summarise, Russia is facing steep repayment schedule on non-Governmental debt in H1 2015, declining in H2 2015, with even more benign demand in H1 2016.  While Russian Central Bank has funds to cover the above volumes of redemptions, even allowing for adjustments to the funds for liquidity risk, the quantum of debt maturing in the next 18 months is high and will require some significant strain on cash flows of the enterprises and possibly significant injections of funding from the state.

The obvious question is: how much equity will migrate from private ownership to state ownership in the latter case.

Sunday, November 23, 2014

23/11/2014: Bruegel on Human Capital Mobility

Couple of interesting charts (and links) via Bruegel relating to the issue of human capital:

First, the flow of higher quality human capital across borders:

And international students participation:

Very strong correlation in the above chart with quality of education system by country:

23/11/2014: Half of Irish Growth Miracle is Accounting Trickery?

Those who read this blog, follow me on twitter or heard me speak recently at the conferences covering Irish economy would know that I have consistently estimated about 1/2 of Irish H1 2014 growth figures to be attributable to something strange that is happening between the official trade statistics we get for goods exports and the national accounts estimate of same exports. The gap is massive and is running now at roughly 7 times the historical average gap.

You can also see some of the same discussion here:

And in print here:

Now we have another economist pointing the same, except this time via the august Irish Times platform that is, of course, off-limits for myself.

Still, good to see someone else, especially from the Officially Approved Economists' list, is putting forward same arguments via the Official Paper of Record... Here is their link:

23/11/2014: Russian economy: Capital Outflows Trends

Russian Capital Outflows have been pretty extreme so far in 2014 - totalling USD85.3 billion in the first nine months of 2014, up on 44.1 billion net outflows in the same period of 2013, USD45.8 billion in 2012 and USD46.9 billion in the same period 2011. At annualised rate, current outflows are running at around USD114 billion, which is the worst year after 2008 outflows of USD133.6 billion.

More than half of these outflows fell on Q1 2014 (USD48.6 billion) with *only* USD36.7 billion in Q2 and Q3. In fact the rate of outflows in Q3 was below the average for 2008-present period (USD18.7 billion per quarter) and over Q2 and Q3 average rate of outflow was below average as well. 

Overall, Net Capital Outflows for Q1-Q3 2014 exceeded average rate of outflows by USD29.3 billion. 

Looking at the composition of outflows, USD16.1 billion of net outflows over the first nine months of 2014 came from the Banking sector - which is worse than the same period 2013 (USD10.9 billion) and 2012 (inflows of USD9.6 billion), but better than the same period of 2011 (outflows of USD17.3 billion). 2008-present quarterly average Banking sector net outflows stand at USD3.72 billion, which suggests that current nine months cumulative outflows exceed average by about USD4.9 billion.

Non-financial sector net outflows for 9 months through September 2014 stood at a massive USD69.2 billion, which is well ahead of same period outflows in 2013 (USD33.3 billion), 2012 (USD55.4 billion) and 2011 (USD29.8 billion). On average, since 2008, net non-financial sector capital outflows are running at USD14.93 billion per quarter. This implies that current running rate of outflows from the non-financial sectors (for Q1-Q3 2014) is some USD24.4 billion ahead of average.

Chart above clearly shows that Q3 2014 non-financial sector outflows have been the worst since Q4 2008, while Q1 2014 outflows in the sector were the 5th worst since the start of 2005.

Overall, the above shows that while some of the media claims may be overstating the extent of the capital outflows deviation from their historical (pre-Ukraine crisis) trends, at the same time, current rates of outflows are of significant concern and cannot be sustained for much longer. The core issue is that non-financial sector outflows can only be stopped or significantly reduced by imposing some sort of capital controls - either in their direct form or via de-offshorization of the domestic investment.

The former will be a very tough pill to swallow for all sectors of the economy and will damage significantly the ruble. The latter is a political sensitive issues as it would involve change in the status quo practices whereby medium-sized and larger enterprises offshore aggressively investment funds to remove these out of the reach of domestic authorities.

Interestingly, if President Putin does follow through on the promise of substantial reforms aimed at reducing state interference in the economy and alleviating pressures arising from corrupt state officials practices, the de-offshorization of the private sector investment can be put in place much less painfully and much more efficiently. See more on this here:

Friday, November 21, 2014

21/11/2014: The Latest Troika Report: Risks, No Buffers, Lots of Hope

The Troika did it bit… flew into Dublin on the 17th and flew out of here today. And left this as a present for all of us to enjoy…

Summary of their statement with my comments (outside quotes).

"Ireland has enjoyed a year beyond all reasonable expectations following the completion of its EU‑IMF supported program. Growth has accelerated to be highest in the euro area, job creation has continued, bond yields are at historic lows, and the fiscal deficit will again be below target. Ireland’s resolute implementation of steady and measured fiscal adjustment has been critical to this success."

Good news all… albeit no mention on the effect of ESA2010 accounting rules on our deficit and debt 'performance', but still, let's bask in some sunshine, for what follows is less sunny.

"Ireland should stick with this proven approach. Why? Growth prospects in coming years are still very uncertain... Current highly favorable international financial conditions may not last as major central banks begin to shift their stance and geopolitical risks can evolve rapidly. A sound fiscal position is a critical buffer in these circumstances."

Hold on there. So there are risks. And these risks included the dreaded prospect of rising interest rates. And our risk buffers are not up to meeting them. Too bad the Government has promised giveaways already for Budget 2016.

IMF goes on: "Ireland’s economic recovery is currently strong, yet major uncertainties remain." Major uncertainties?… "The sharp rebound in 2014 is led by exports and investment and is increasingly supported by consumer spending. …The mission estimates growth at just over 4 percent in 2014, yet there are significant uncertainties owing to the large contribution of offshore manufacturing to exports. Growth is projected to ease to about 3 percent in 2015 but the range of forecasts is wide, in part reflecting risks to growth in Euro Area trading partners and to international financial conditions." Oh dear. What this means is that growth is here, but much of it is based on:

  1. MNCs exports, and
  2. Hoped-for domestic recovery yet to materialise in any substantial form.

And what about those pesky "financial conditions"? Well, they are allegedly "...highly favorable and lending may be picking up from subdued levels. ...yet nonperforming loans (NPLs) remain very high. Lending has been weak, in part reflecting firms’ reliance on retained earnings, but mortgage loans have recently picked up in the context of sharply rising housing prices driven by job gains, declining household uncertainties, and a weak construction supply response."

House prices driven by jobs gains? Presumably in D2/D4/D6 where the 'middle Ireland' is bidding over 500K for 3-beds. Some jobs creation boost. With the "financial conditions" being fine, except in the real economy, where they are bad, we are back in the 'things are so bad, they must improve sometime' growthology.

Key kicker is Fiscal Policy - something that Government directly controls. Here's IMF on that:
"...a budget deficit that may be over 4 percent of GDP in 2014 remains too large to put Ireland’s high debt firmly on a downward path. Moving to a balanced budget over time would also buttress Ireland’s highly open economy against the broad range of shocks to which it is exposed."

Wait, this is straight from the Fiscal Council textbook (and do note - they are going to wade in with their 'views-to-be-ignored' next week). But it is worse than the Fiscal Council 'below 3% target' - this is about balanced budget aka 'zero % target'.

"The mission estimates that Budget 2015 generates an adjustment of about ½ percent of GDP in structural terms. A somewhat faster pace of improvement would have been preferable in view of relatively strong near-term growth prospects. Hence, any revenue over-performance or additional interest savings should be used to lower the deficit in 2015."

But Budget 2015 was billed by the Government as 'sustaining the recovery' effort. Not so much, says the IMF in the above. Rather looks like 'gambling on the continued recovery' effort to me.

"In the medium term, ... the authorities’ strategy to reach balance centers on fiscal restraint as set out in the expenditure ceilings and in the Comprehensive Expenditure report 2015‑2017. The mission estimates that this entails annual structural adjustment of ¾ percent of GDP over 2016–18, which avoids undue drag on growth. Such a steady approach to consolidation will help cushion shocks and result in faster progress to balance if medium-term growth is stronger than expected, and vice versa. Fully utilizing asset disposals, notably of the banks, to hasten debt reduction will reduce interest expenses, thereby containing the cumulative consolidation required."

In other words, you thought austerity is gone? Well, think again:

  1. The above says there is more needed, albeit at marginal levels, and
  2. The above assumes no slippage on 'savings' achieved to-date. Which is going to be very very hard to maintain as public sector agreements of the past come to renegotiations just at the time when political cycle favours giveaways to powerful interests.

Risks to the above also include, as IMF notes "…age-related demands for public services are rising and other expenditure pressures may emerge after prolonged restraint. Further reforms will be needed to generate savings while protecting public services and investment, and progress in containing the wage bill must be preserved." I flagged the rapid rise in retired numbers in recent analysis of the QNHS data. It now looks like the IMF is concerned we are swapping spending on unemployment supports for spending on early retirement schemes for public workers.

Another perennial headache is mortgages arrears. Much of policy expanded on this and the progress is questionable at best. IMF view is:  "Banks report good progress on workouts in relation to the CBI’s targets. The low rate of redefaults to date is welcome [I wonder if the low rates of re-default are 38% rate of actual redefaults reported by the CBofI in whauch case the Troika shows some humour here], yet some cures with smaller debt service reductions may not prove to be lasting, requiring banks to better target solutions. With about half of arrears cases under legal proceedings, it is important that these proceedings, together with active follow-up by the banks, are effective in motivating borrowers to reengage in a timely manner to reach restructuring solutions where feasible. Substantial unfinished mortgage resolution work requires continued supervisory targets for coming years, with due attention to reversing the continued rise of buy-to-let loans in arrears."

So the crisis has not gone away. And the evidence on quality of resolutions is dubious. But the IMF solution is - hammer more the borrowers, even though hammering them today might backfire tomorrow. I wonder if rational expectations form a part of the IMF economics team heads?

Problem number two: arrears in SMEs loans. "Implementation of lasting solutions for distressed commercial loans is also essential. Corporate, SME, and commercial real estate loans comprise the largest share of NPLs. Supervision should ensure that banks are either encouraging appropriate progress by distressed borrowers in the execution of workout plans or are making timely loan disposals."

Basically, this says "We've given up. Nothing seems to work, so just bankrupt the lot or sell the toxic stuff for someone else to bankrupt the lot". Not good. Not good at all.

Patrick Honohan got a ringing endorsement for his efforts to cool off the property lending (that is nowhere to be seen… which is sort of like evading icebergs in the middle of the Gulf of Mexico):
"New residential mortgage lending rules proposed by the CBI are a welcome step… The introduction of loan-to-value and loan-to-income ceilings will increase the resilience of both the banking and household sectors to financial shocks…"

And the last bit - the fabled Structural Reforms. Here, IMF remains true to its previous commitments of not producing any new thinking. Just keep raising the ghosts of the past, that is construction and employment activation.

"A stronger construction supply response is needed to help contain pressures on housing prices and rents. Housing completions remain low despite a 42 percent rise in Dublin house prices from their trough, which is also contributing to rising rents. A range of factors are impeding an adequate supply response by the construction sector, potentially hindering a renewal of migration inflows. Timely implementation of the government’s Construction 2020 initiatives is therefore important. In particular, the introduction of use-it-or-lose-it planning permissions together with vacant site levies could usefully help counter reluctance to develop properties owing to expectations of further price appreciation."

This is, frankly, a loony bin of policy proposals. The market is utterly dysfunctional - funding is hard to get, land is overpriced, supply of land is effectively controlled by Nama and vultures. Construction costs are sky high due to Government own 'reforms' from the past. And the IMF is offering to make things even more costly for development? Are they for real?

On employment activation: "Efforts to strengthen employment and training services should continue.  High levels of youth and long-term unemployment pose downside risks to employment and hence to growth in the medium term. Steady progress on engaging with long-term unemployed persons is being made and the private sector provision of employment services is expected to start in the second half of 2015. The establishment of regional Education and Training Boards that will collaborate with Intreo offices to facilitate referrals of jobseekers to training is welcome. Ensuring that these new frameworks are most effective in helping the unemployed return to work will require ongoing evaluation and adaptation."

In basic terms, there is nothing new in the above. Keep going the way we've been going: more questionable quality training programmes, more forced participation, more exits from the labour force dressing up unemployment figures. Just shove the long-term unemployed under the rug and pretend there is nothing there.

In short, the Troika review is a dud: it found little new, it offered no new policies, save for making things worse for developers and builders. But it, usefully, pointed the hotheads from the Government 'spend and be merry' side in the direction of the cooler winds of risks painting our horizon in unpleasantly steely hues.

21/11/2014: Irish Property Markets: Not in Rude Health, Yet...

Four slides from my ICA presentation today, covering construction sector and property market in Ireland:

Thursday, November 20, 2014

20/11/2014: Oil Prices: Supply and Demand Drivers

An interesting BofE note on links between commodities prices & UK inflation:

A key chart - from global perspective - is this one:

Main points are:

  1. 2014 demand growth is way down, driven primarily by contracting demand in the OECD economies (advanced economies rot) and to a lesser extent relatively flat (compared to 2000-2007) growth in non-OECD economies.
  2. Supply from non-OPEC sources is way up, while OPEC is cutting back. Net effect - growth in supply is way above 2000-2007 average.
This suggests that OPEC will have little room to cut continued growth in supply, while some restoration in demand should take place if the OECD economies post more robust growth in 2015. Still, it is hard to see how the above dynamics can support oil prices in USD100+/b over the next 12-15 months.

Wednesday, November 19, 2014

19/11/2014: Two articles on Russian economy and reforms

Two important articles on Russian economy and policy via Bloomberg:

19/11/2014: Irish Patents Filings: Q3 2014

As a taster for my Friday presentation at the ICA, here's a slide from my deck on Ireland and our challenges and opportunities forward:

Note: data plotted is via @newmorningip .

And here is monthly data:

One major point to be made on the above data: Irish patent filings are still falling below 50% of all filings, while Irish acedemic filings are still running at around 8% of the total. The gap between foreign and domestic filings has fallen to 73:100 in Q3 2014 from 82:100 in Q2 2014.

Tuesday, November 18, 2014

18/11/2014: Commodities-linked Currencies and Ruble

Good chart plotting side by side all commodities-linked currencies relative to USD (via @auaurelija) :

Above suggests that Ruble devaluations from September 1 to-date are somewhere around 3/10th part due to same effects that impact other major commodities producers. Given Russian energy exports exposure to European markets, the effect might be as large as 3/7th.

Monday, November 17, 2014

17/11/2014: Central Bank Strategic Forecasting

"In most of the literature on transparency it has been standard to assume that central banks release truthful information when communicating with the public. However, the monetary policymaker may act strategically and misrepresent private information intending to reduce economic volatility by manipulating inflation expectations. We set up a simple model which includes misrepresentation as a possible action for the central bank and derive some testable implications. The empirical evidence from the analysis of inflation forecasts of six central banks (Brazil, Canada, England, Iceland, New Zealand, and Sweden) is consistent with the existence of strategic forecasting."

Italics are mine. The quote is from Gomez-Barrero, Sebastian and Parra-Polania, Julian A., "Central Bank Strategic Forecasting" (October 2014). Contemporary Economic Policy, Vol. 32, Issue 4, pp. 802-810, 2014.

Nothing else to add, other than that the guardians of data, the supervisors of the financial system, the enforcers of rules and regulations are… crooked when it comes to the forecasts they lavish on the unsuspecting journos and public.

H/T to CeBaSCo @cebastcom

17/11/2014: All the years draining into banking cesspool...

So the tale of European banks deleveraging... record provisions, zero supply of credit for years, scores of devastated borrowers (corporate and personal), record subsidies, record drop in competition, rounds and rounds of 'stress testing' - all passed by virtually all, the Banking Union, the ESM break, forced writedowns in some countries, nationalisations, various LTROs, TLTROs, MROs, ABS, promises, threats, regulatory squeezes ... and the end game 6 years into the crisis?..

Per Bloomberg Brief, the sickest banking system on Planet Earth is... drum roll... Wester European one.

It is only made uglier by all the efforts wasted.

H/T for the chart to Jonathan. 

17/11/2014: G20 and Russia: G19+1 or G20-8?..

My comment for the Portugal's Expresso on the G20 summit in the context of the Russia-West relations:

Sunday, November 16, 2014

16/11/2014: The Sunny Side of the Stormy Irish Recovery

My article on the state of the Irish economy published by the ZeroHedge:

16/11/2014: America's Scariest Chart...

Yes, US unemployment is declining. Yes, US economy is adding jobs. Yes, the crisis is… almost over… Except…

Except that is:

  • Average duration of unemployment rose in October (the latest we have data for) and
  • Average duration of unemployment remains totally out of touch with previous recessions.

Now, note the following regularity:

  • After 2001 recession, average duration of unemployment never returned to pre-recession levels;
  • The same has happened in the recession of 1990-1991.

In other words, so far in all three most recent recessions there was a permanent increase in unemployment duration over and above pre-recessionary average.

Every time this happens in the economy the following takes place: some of those who were long term unemployed during the recession become permanently unemployed. And every time this happens, the jobs being created in a recovery are by-passing those who have been long-term unemployed.

Now look back at the current crisis running stats. Average time it took unemployment duration to fall back to pre-crisis levels in all previous recessions is 61 months. We are now into 77th month of unemployment duration staying above pre-recessionary levels. And counting. By length of the crisis to-date, this is the third worst recession in post-war history.

We are also at the duration levels vastly in excess of those recorded in all previous recessions. By this matrix, the US is in its worst recession in post-war history.

Here is the raw data:

While the US economy might be generating jobs, it is not generating enough of the jobs to shift the long-term unemployed, and it is not generating the types of jobs that can get this massive army of people forced to rely on unemployment benefits back into productive employment.

Saturday, November 15, 2014

15/11/2014: Emerging Markets Rot Drives Russian Economic Uncertainty

Some interesting data from the Policy Uncertainty Index for Russia (see I traced out the main news markers over the period covered by the index (click on the chart to enlarge):

Note: higher values of Index, greater attention to the domestic economic and economic policy uncertainty in the media.

There is a clear pattern of rising policy uncertainty from, roughly speaking, early 2008, with both geopolitical risks (Georgia conflict) and economic risks (the 2009 recession) as well as internal political risks (2012 elections) all coincident with amplification in uncertainty. Ukraine crisis period is clearly only comparable in uncertainty with the last Yeltsin elections (which almost lost to the Communist Party candidate).

Volatility in uncertainty has also been on the rising trend, since, roughly, 2009 (note: the chart below is plotting 24mo MA):

However, it is worth correcting in the above data for the general global changes, not just Russia-own trends. To do so, let's take a look at Russia's Policy Uncertainty Index relative to the average of the same indices for China and India:

Notably, Russia's relative uncertainty has peaked around April-May 2014 and then subsided despite the fact that Ukraine conflict remains active. This suggests that post-May 2014, the acceleration in the rising trend in Russian economic and policy uncertainty is driven more by the general rot setting in in the Emerging Markets, and less by the geopolitical crisis.

Here is a chart plotting Policy Uncertainty Indices for the U.S., Russia, China and India:

This further confirms the above proposition: China is now showing levels of policy uncertainty on par with those in Russia. Geopolitics take a back seat to economics of the Emerging Markets slowdown.

Friday, November 14, 2014

14/11/2014: Irish Construction Sector PMIs: A Bit Bubbly, A Bit Bonkers…

Ulster Bank and Markit published Construction PMI for Ireland, and the numbers signal huge uplift in activity across all sub-sectors, excluding Civil engineering. However, Civil Engineering post an above 50 reading (albeit consisted with virtually no growth) for the first time since Q1 2006.

So here we have it:

Total Activity PMI for Construction sector in Ireland rose to 64.9 in October, signalling huge rates of growth, despite few cranes being visible around. 3mo average through October is at 62.6 against 3mo average through July at 60.9. Similar rises were recorded in 6mo average through October. All of which suggests we should be seeing a massive boom. Of course we are not. Why? Because the levels from which the activity is rising are… well, microscopic.

Housing sub-sector PMI rose moderated slightly to 66.4 from the blistering 68.4 a month ago. 3mo average through October is at 66.17 against 3mo average through July at 62.57. Again, the above numbers would have signalled we are in a new bungalow blitz boom, except we are not. At least not yet.

Commercial sub-sector PMI hit 66.8 in October, a solid rise from already boiling 62.7 in September. 3mo average through October is at 64.23 which is up on 61.8 3mo average through July 2014.

Civil Engineering PMI came in at 50.6 in October, which is welcomed sign. Still 3mo average through October remains below 50.0 at 48.0 and that is a slight improvement on 3mo average through July (47.43).

Crucially, the improvement in the Civil Engineering sub-index pushed all sub-sectors to co-move as the table below shows:

It is worth remembering that Construction Sector PMIs seem to have little bearing to the reality in the sector activity on the ground as shown below, so it is worth taking these numbers with a grain of salt.

Just how bonkers is the above PMI data? Or just how much salt to be used with that fish:

Yep, historically, PMIs decline when activity expands and vice versa...