5/6/2014: Irish Manufacturing & Services PMIs: May 2014

Both, Irish Services and Manufacturing PMIs are now out for May 2014 (via Markit and Investec Ireland) and it is time to update my monthly, quarterly and composite series.

In this post, let's first cover the core components in monthly series terms:

1. Manufacturing PMI eased from 56.1 in April to 55.0 in May - a decrease that reduced the implied estimated rate of growth in the sector. Still, Manufacturing index is reading above 50.0 (expansion line) continuously now since June 2013. 3mo MA through May is at 54.8 - solid expansion and is ahead of 3mo average through February which stood at 53.1. So expansion accelerated on 3mo MA basis. The current 3mo MA is ahead of 2010, 2011 and 2013 periods readings. Over the last 12 months there have been only 3 months with monthly reductions in PMIs: November 2013 (-2.5 points), January 2014 (-0.7 points) and May 2014 (-1.1 points).
2. Services PMI eased only marginally from 61.9 in April to 61.7 in May - this implies that services sector growth barely registered a decline and remained at a blistering 61-62 reading level. Services index is reading above 50.0 (expansion line) continuously now since July 2012, helped no doubt by a massive expansion of ICT services MNCs in Ireland, which have little to do with the actual economic activity here. 3mo MA through May is at 60.0 - solid expansion and only slightly below 3mo average through February which stood at 60.3. The current 3mo MA is ahead of 2010, 2011 and 2013 periods readings. Over the last 12 months there have been 5 months with monthly reductions in PMIs, all sharper than the one registered in May 2014.

Here are two charts showing historical trends for the series:

The two series signal economic expansion across both sectors in contrast to May 2012 and 2013:

In line with the above chart, rolling correlations between the two PMIs have firmed up as well over recent months, rising from 0.33 in 3mo through February 2014 to 0.5 for the 3mo period through May 2014.

We will not have an update on Construction sector PMI (Markit & Ulster Bank) until mid-month, so here is the latest data as it stands:

• In April 2014, Construction sector activity index rose to 63.5 from 60.2 in March 2014. This marks second consecutive month of m/m increases. In the last 12 months, there have been 7 monthly m/m rises in the index and index has been returning readings above 50 since September 2013.

Core takeaways:

• Both services and manufacturing sectors PMIs are signaling solid growth in the economy,
• Jointly, the two indices are co-trending well
• Caveats as usual are: MNCs dominance in the indices dynamics and shorter duration of statistically significant readings above 50.0 line: Manufacturing shows only last three consecutive months with readings statistically significantly in growth territory; while Services index producing statistically significant readings above 50 for the last 6 months.
• Last caveat - weak relationship remains between actual measured activity in the sectors and the PMI signals: http://trueeconomics.blogspot.ie/2014/05/1552014-pmis-and-actual-activity.html

Next post will cover quarterly data and composite PMI.

8/5/2014: Irish Manufacturing & Services PMIs: April 2014

Irish Manufacturing and Services PMIs were out for April both showing aggregate gains, both not reported sufficiently in terms of data coverage to make any verifiable statements about composition of these gains.

Let's start from Manufacturing figures first:

• April 2014 PMI reading was at 56.1 - which is well above statistically significant bound of expansion. 
• 3mo MA through April is now at 54.8, some 1.9 points above 3mo MA reading though January 2014 and 5.5 points ahead y/y. Both good indicators of improving growth in the sector.

On Services side:

• April 2014 PMI reading was at blistering 61.9 - which is strongly above statistically significant bound of expansion. 
• 3mo MA through April is now at 60.0, basically flat on 3mo MA reading though January 2014 (60.13) and 2.8 points ahead y/y. Both good indicators of continued strong growth in the sector.

However, 3mo MA on 3mo MA changes are not spectacular in Services sector, as the chart below shows. This might simply be due to already sky-high readings attained in recent months.

Both indices show expansion in the economy (a changed from same period 2013) and as the chart below shows, correlation between the two indices is running strong (both co-move currently).

So based on top-level data, things are improving. The caveats are as usual:

1. We have no idea what is happening on the underlying side of the above stats as Investec & Markit no longer make available sub-indices information
2. Much of the PMIs-signalled activity is not coinciding with actual activity on the ground over the medium term (although some indications are that once we are firmly on growth trend path, the two sets of data - CSO and PMIs - will start comoving again).

In short, just as sell-side stockbrokers reports and Consumer Confidence Indicator, PMIs are least useful in telling the real story just when the demand for such story is most acute. 

2/4/2014: Irish Manufacturing PMI: March 2014

We now have Manufacturing PMI for Ireland for Q1 2014, so here are couple updated charts:

Few notable things in the above:

1. PMI now solidly above the 'statistical significance' range for the first time since October 2013. Also, March 2014 marks eighth consecutive month of PMI ahead of its post-crisis average (from January 2011).
2. The post-crisis average is still lower than pre-crisis average.
3. PMI continues to trend up with new short-term trend running from around June 2013.
4. 12mo average is at solid 52.1 and 3mo average through March (Q1 2014) is at 53.7 which is basically identical to 3mo average through December 2013 (Q4 2013) which is 53.6. 
5. Q1 2014 average is above same period reading for 2011 (49.8) and 2012 (50.1), but it is below same period 2010 average (56.1).

Key takeaway: solid PMI reading for Irish manufacturing - a good thing. As I noted before, Manufacturing PMI has stronger link to our GDP and actual industry output than Services PMI, so this is a net positive for the economy.

10/2/2014: Irish Services & Manufacturing PMI, January 2014

While on the topic of PMIs (see Construction PMIs update here: http://trueeconomics.blogspot.ie/2014/02/1022014-ulster-bank-construction-pmis.html), let's update also Manufacturing and Services PMIs data.

Services:

• January Services PMI index slipped slightly to 61.5 from 61.8 in December 2013. The deterioration was not material from statistical point of view, so the index remains effectively at the high level for the last 12 months.
• 3mo MA through January 2014 was 60.1 - above 56.2 in the same period through January 2013, and ahead of 3mo MA through November 2013. This is good news as it allows for some correction in monthly series volatility.
• The series are above their crisis-period trend and are still trending up.
• The index is now above 50.0 since August 2012 - a solid performance, with the rates of growth being on average above 60.0 since at least July 2013.

Manufacturing: 

• January Manufacturing PMI index also moderated to 52.8 from 53.5 in December 2013, with this moderation being significant, albeit shallow.
• On a 3mo MA average, index is at 52.9, which is ahead of 51.4 in the same period of 2013 and is ahead of the 3mo MA through November 2013.
• The index readings have rested above 50.0 nominally since June 2013, although they are significantly (statistically) above 50.0 for a shorter period of time, from somewhere around September 2013.

Overall, January posted slowdown in both indices growth, and 3mo MA for growth rates in the index is now negative for Manufacturing, and moderately positive for Services.

Longer-range good news is highlighted in the next chart, showing that in January 2014, levels of two PMIs were consistent with expansion across both sectors, contrasting the situation in January 2012 and January 2013.

Top level conclusion: The numbers show a good start to 2014, but Manufacturing remains a weaker point for the economy. Given monthly volatility in the indices, we need to see more data from PMIs to call the 2014 trends


As usual, the caveats apply: I have no data on sub-components of both PMIs - the core information that is no longer being made public by Investec and Markit (the publishers of the two series). Unfortunately, this means I no longer cover the two organisations' analysis of the components as these are unverifiable and statistically no longer testable.

8/2/2014: Irish Services Sector Activity: FY 2013

In the previous posts I covered:
Monthly data for Irish Services Index for December 2013: http://trueeconomics.blogspot.ie/2014/02/822014-services-index-monthly-series.html, and
Quarterly series:
http://trueeconomics.blogspot.ie/2014/02/822014-q4-2013-data-on-services.html

Now, time to update full year figures for 2013.

First, y/y changes between 2012 and 2013:

Main point - even with 5.7% annual growth in ICT services and 22.3% growth in Administrative and support services, overall services sectors expanded by only 0.9% in 2013. Do note, this is a value index, so inflation is factored in too.

But what about longer term growth? Sadly, we only have comparable data from 2009 on. So here are the changes between 2009 and 2013, cumulative:

And two main drivers in the above are ICT services (remember those MNCs that book activity taking place across Europe into Ireland, as if Irish operations produced them?) and Wholesale Trade services (now exhausted and falling 6% y/y in 2013). In other words, nothing really is growing over the long range.

And with this, over the last 4 years, cumulated growth in all services recorded was just 3.5%. Inflation alone exceeded this by almost double.

But things are getting better, right? Growth is returning? Right? Here's a chart comparing growth in 2012 compared to 2011 and in 2013 compared to 2012. The positive values are where growth conditions improved, negative - where they deteriorated:

No comment.

8/2/2014: Q4 2013 data on Services Activity in Ireland

In the previous post I covered some top-level data for Irish Services Index for December 2013: http://trueeconomics.blogspot.ie/2014/02/822014-services-index-monthly-series.html

As promised, we now shall take a look at the data on quarterly basis, stripping out some volatility in the monthly series. Note, all data below references seasonally-adjusted series.

In Q4 2013, compared to Q3 2014:

• Wholesale Trade activity shrunk 1.71%, pushing y/y drop to 5.85% which is worse than the 4.54% annual drop recorded in Q3 2013. The sector reading is the lowest since Q4 2010.
• Wholesale and Retail Trade, Repair of Motor Vehicles and Motorcycles sector activity fell 5.89% in Q4 2013 compared to Q3 2013, and there was an annual drop of 7.95% in Q4 2013, much worse than 0.19% decline recorded in Q3 2013. The sector is at the lowest reading for any quarter since Q3 2011.
• Transportation & Storage sector activity fell 5.73% in Q4 2013 compared to Q3 2013, and there was an annual drop of 4.47% in Q4 2013, much worse than a rise of 1.34% recorded in Q3 2013.
• Accommodation and Food Services sector activity rose 3.73% in Q4 2013 compared to Q3 2013, and there was an annual rise of 1.34% in Q4 2013, much better than a 3.6%% decline recorded in Q3 2013. The sector reading is at the highest level since Q3 2012
• In the above, Food services sector activity rose 4.89% in Q4 2013 compared to Q3 2013, and there was an annual rise of 5.27% in Q4 2013, much better than 0.99% decline recorded in Q3 2013.
• Also in  the above, Accommodation services activity rose 6.29% in Q4 2013 compared to Q3 2013, and there was an annual rise of 0.83% in Q4 2013, much better than 6.93% decline recorded in Q3 2013.

In the above chart:

• ICT sector activity rose 1.96% in Q4 2013 compared to Q3 2013, and there was an annual rise of 1.96% in Q4 2013, much worse than 4.45% rise recorded in Q3 2013.
• Professional, Scientific and Technical services sector activity fell 3.26% in Q4 2013 compared to Q3 2013, and there was an annual drop of 12.38% in Q4 2013, much worse than 5.16% decline recorded in Q3 2013. The sector hit its historical low in Q4 2013.

Now, to the last bit:

• Administrative and support service activities sector rose 0.96% in Q4 2013 compared to Q3 2013, and there was an annual rise of 20.94% in Q4 2013, compared to 21.77% rise recorded in Q3 2013
• Overall services activity fell 2.23% in Q4 2013 compared to Q3 2013, and there was an annual fall of 2.69% in Q4 2013, compared to a rise of 2.19% y/y recorded in Q3 2013.

And summary of q/q changes for Q4:

So decent news on Accommodation and Food sector side, poor growth on ICT services side and for Admin and backoffice side, and outright shrinking on all other sectors...

Annual data summary next.

8/2/2014: Services Index: Monthly Series December 2013

CSO released cheerful headlines for Irish Services Index, measuring activity in the largest part of the Irish economy.

Here's from the CSO release: "The seasonally adjusted monthly services value index increased by 1.3% in December 2013 when compared with November 2013 and there was an annual decrease of 1.5%."

Oops… things are up m/m and down y/y. But obviously the headline reads only the former, none of the latter.

"On a monthly basis, Information and Communication (+5.4%), Professional, Scientific and Technical Activities (+3.5%) and Administrative and Support Service Activities (+2.3%) showed increases when compared with November 2013.    Other Service Activities (-3.2%), Transportation and Storage (-1.6%), Accommodation and Food Service Activities (-1.1%) and Wholesale and Retail Trade (-1.0%), decreased when compared with November 2013."

Spot the problem? Controlling for ICT services (wait till Yahoo washes all its tax arbitrage through Dublin next) the only tangible, value-added activity that rose was Professional, Scientific and Technical Activities. We have no idea what drove this, but a rise here, excluding insolvency and mortgages arrears-related services and collection agencies would be helpful.

You really have to look at annual basis decomposition to see what is happening in the economy, though: "On an annual basis, Administrative and Support Service Activities (+27.7%), Information and Communication (+4.0%) and Accommodation and Food Service Activities (+2.4%) increased when compared with December 2012." That was is for increases: more paper pushing across tables, more back office supports and more adjoining ICT services. On the other hand, the rest of services are tanking: "Professional, Scientific and Technical Activities (-9.1%), Wholesale and Retail Trade (-8.2%), Transportation and Storage (-6.8%) and Other Service Activities (-6.5%) decreased when compared with December 2012."


So let's illustrate the above 'trends' in a few charts.

 Do keep in mind that, ex-ICT services, the Professional, Scientific and Technical Activities are our 'knowledge economy'. The trend here is down, down and down.

But now for the services sector overall:

The trend above is clearly showing a marked slowdown in activity in Q3-Q4 2013, just when we were being fed a steady diet of 'Things are Only Getting Better'. Am I missing something here? With all the ICT Services booming and all the Admin and Backoffice activities rising, we were supposed to get a strong retail season and a hopium-filled boost to domestic services too... But, apparently, we are having trouble recording these magnificent increases in the data?.. Oh, and do note, the data is in value terms, so inflation here is helping to push 'activity' up.

And the PMIs were booming too, for Services, just as the services activity was slipping?..


Next post will take a deeper look at the dynamics, controlling for monthly volatility. Stay tuned.

6/1/2014: Services PMI: December 2013

Markit/Investec Services Sector PMI for Ireland for December 2013 is out today, showing accelerated pace of growth in the sector. Per release: "The rate of growth in Irish service sector activity picked up at the end of 2013 as strengthening economic conditions contributed to a sharp rise in new business. The rate of job creation also accelerated during the month. Part of the strength in new orders was reflective of output price reductions, with discounts offered in spite of a faster increase in input costs."

The release goes on to note that "The rate of expansion in new business quickened for the third month running and was the sharpest since February 2007."

Overall, Q1 2013 average PMI in Services stood at 54.2,basically identical to 54.27 average for Q2 2013. This rose to 58.67 in Q3 and to 59.67 in Q4 2013. Year on year, Q4 2013 is now up from 56.0. Q4 2013 average is the strongest in 4 years running.

The PMI index is now above 50.0, adjusting for statistical significance, for 7 months in a row.

Charts to illustrate:

More analysis to follow, so stay tuned.

3/10/2013: Services PMI: September 2013

Markit and Investec released Services PMI survey press release for Ireland. As usual - the note is full of statements that can not be confirmed by information contained in the note itself.

On the side that can be reported/interpreted:

• PMI slipped from what appeared to be an unlikely jump to 61.6 in August to slightly lower, yet still strongly-expansionary 56.8. This is still a robust rate of growth. 
• I cannot tell if it was driven by a handful of MNCs or was broadly-based. Allegedly, the UK was the main source of strength for new exports orders, which are expanding, seemingly (reading the Markit release) at a more modest pace than headline PMI indicates. The UK receives huge volume of exports from Ireland on ICT services side (the likes of Google et al) and this is the major point of contention the UK Government has with Irish tax structures, so it might be that much of the services exports 'boost' comes from transfer pricing.

• Dynamics are good: there is new upward sub-trend established since September 2012 and this breaks the period of flat trend between September 2010 and September 2012. 
• Significantly, since around September 2012 the series have been - on average - in the statistically-significant zone of expansion (again, distinct from September 2010-September 2012 period when expansions on average were not statistically significant).

• On quarterly averages basis: Q1 2013 came in at 53.7, Q2 at 54.3 and Q3 came in at 58.7. Sounds impressive, however, if we account for the freakishly high reading in August (partially and imperfectly controlling for weather effects) the Q3 average sits within 55-56 range. Thus even with weather effects taken out, the overall Q3 result is strong.
• On annual basis, using quarterly averages: Q3 2010 stood at 52.5, Q3 2011 at 51.4, Q3 2012 at 51.6 and the current running average is well ahead of all of these, even if we take adjustment for unusually good weather.

Overall: good numbers. However, we have no tangible information as to the movements on profit margins, employment, export orders, new orders etc. You should read this note on some caution regarding interpreting PMI for Services for Ireland: http://trueeconomics.blogspot.ie/2013/09/592013-cautionary-note-on-irish.html. Combined analysis of Manufacturing and Services PMIs to follow shortly.

Note: To add to this, I have now been seemingly removed from the mailing list for the slightly more detailed version of release (or Investec stopped supplying one altogether). 

5/9/2013: A Cautionary Note on Irish Services PMIs

having just written about the Irish Services PMI performance in August, here's an update on the link between PMI and actual Services Activity Index, published by the CSO (one month lag).

The latest data from CSO on Services Index will be analysed in the subsequent post, but for now a health warning reminder: Services PMI has barely any bearing on the actual Services activities in Irish economy:

Basically, correlation - from January 2009 through July 2013 - between the Services PMI and CSO Services Activity Index is exceptionally poor: it stands at just 0.1367. Services PMI readings have no explanatory power when it comes to tracking performance of the Services Activity Index. On log-changes chart, PMI is capable of capturing just 0.0071% of variation in Services Activity Index. On straight levels even less. Lags are not yielding any meaningful improvements in explanatory power, neither do non-linear models.

In my view, this testifies to the extreme skews in PMI survey data to reflect the role of MNCs in ICT and IFSC sectors here.

3/5/2013: Irish Services PMI April 2013: Some good, some make-believe news

For a change from the declining fortunes of Irish manufacturing (aka, production of at least some real tangible stuff by humans, albeit richly peppered with tax arbitrage), the accounting trick called Irish Services (aka, billing of services sold in Mongolia to Dublin by companies minimising tax exposures in the US) is booming.

Good news for GDP. Good or bad news (depending on capex cycle and financial engineering - as exhibited by Apple 'bond' offer this week, etc) for GNP. Even better news for the Government solemnly incapable of supporting growth at home, and thus solely reliant on Mongolian demand for 'Irish' services and Obama administration lag in realising that another corporate tax amnesty is long overdue (note to the White House: check out Ireland's IFSC deposits).

Latest NCB Services PMI for Ireland published today show continued expansion in Services sector:

• Headline Services PMI rose from 52.3 in March to 55.2 in April - statistically significantly above 50.0 for the first time since January 2013. This marks ninth consecutive monthly reading above 50.0, and sixth time the index is above 50 with statistically significant margin.
• Good news: this time around there was significant growth signaled in Transport, Travel, Tourism & Leisure sector (potentially due to twin effects of The Gathering and the EU Presidency - which should really count as subsidy activities this year). However, another significant driver in upside growth were Financial Services (aka IFSC). Business Services and Technology, Media & Telecoms services both recorded moderation in the rate of growth, as signaled by PMI.
• On dynamics side, 12mo MA through April 2013 for Business Activity headline index now stands at 53.3, with 3mo average at 53.7. Both are below 3mo average through January 2013 which stood at 56.2, so there is still some slowdown in the rate of growth. Latest 3mo average is ahead of same period 3mo averages for 2010-2012.

Per last chart above, 

• New Business sub-index remained practically unchanged at 54.2 in April, compared to March (54.1) with both months posting reading statistically above 50.0 - which is good news.
• On dynamics side, 12mo MA was at 53.7 in April 2013 - a healthy reading, with 3mo MA through April 2013 almost bang on at 12mo average level of activity at 53.8. Previous 3mo average through January 2013 was at blistering 56.5, so there is some marked slowdown in the rate of growth. Nonetheless, last 3 months marked the fastest growth for the same three months period for any year since 2010.
• April 2013 was the ninth consecutive month of New Business sub-index readings above 50.0, with seven of these months posting readings statistically significantly above 50.0.

I will blog separately on employment and profitability in both services and manufacturing so stay tuned for details on these.

Business confidence and New Export Business sub-indices both showed some slowdown in growth, but still remain in rude health. On foot of this, employment growth rate improved:

Overall, sarcasm aside, the Services sectors continued to support economic growth, even though much of this growth is coming from the make-believe tax arbitrage stuff. Still, better have make-believe dosh than none at all. And a welcomed reprieve from the past years' trials for the Travel & Toursim sector too.

One note of caution, though: Irish Services PMI have little to do with Irish Services actual activity levels... see here: http://trueeconomics.blogspot.ie/2013/04/742013-irish-services-activity-index.html

5/3/3013: Irish Services PMIs: February 2013

Irish Services PMI (published by NCB) for February were out today, highlighting some interesting (for a change) shifts in the short-term trends worth discussing.

The headline numbers were good, although less strong than those recorded in January. This is not surprising since PMI surveys are biased toward multinationals in some core driving sectors (due to weighting factors attached to sectors and the overall quality, collection and reporting of data biases).

• Seasonally-adjusted Business Activity (headline index) declined to 53.6 in February from 56.8 in January 2013, but remained above 50.0 line. 
• 12mo MA through February 2013 was 53.0, which is not statistically significantly different from 50.0, but nonetheless represents a reading consistent with moderately strong expansion of activity. This marks the seventh consecutive month of readings above 50.0 although February was the second slowest month for activity over this latest period of consecutive expansions.
• 3mo MA through February is now identical to the previous 3mo MA through November 2012 - both at 55.4. For comparative purposes: 3mo MA through February 2010 was 47.2, through February 2011 - 52.1, through February 2012 - 50.0, so annualised activity is running ahead of previous 3 years.
• Main point to be made in the above is that since roughly April 2010, we have been trending along a new late- or post-crisis trend along the average of 52.1 average (49.6 to 54.6 range) as compared to May 2000-December 2007 average of 57.6 (52.5 to 62.7 range). As charts above and below clearly show, the new trend is (1) lower and (2) less steep in take-offs from the local minima (lows). In my view - this shows two factors: Factor 1: overall slower rate of growth (do keep in mind that the current trend is coming off historical lows of the Great Recession and should be consistent with much faster uplift and higher average and range than pre-crisis trend), and Factor 2: more mature nature of business in Irish Services sectors (with ICT and Financial Services now in advanced stages of late investment cycle compared to the period of 2000-2007 when these were growing rapidly and posting recovery from the dot.com bubble).

Now on to some of the components of the headline index.

• Chart above shows that New Business sub-index also posted moderation in the rate of growth in February 2013 compared to five months of robust expansion prior to February. In fact, February reading of 53.1 was the slowest pace of expansion in seven months, although it does come on foot of seven months of consecutive above 50.0 readings. 
• Trend-wise, the same conclusions that were drawn in the last bullet point on the headline index - those relating to structurally slower pace of growth in the recent years compared to pre-crisis rates of expansion - continue to hold for New Business sub-index as well. Since April 2010, the sub-index averaged 51.3 (range of 48.4 to 54.2) against pre-crisis (May 2000-December 2007) average of 57.4 (range of 52.4 to 62.5).
• On short-term dynamics, 3mo MA through February 2013 stood at 55.4, slightly down on 55.8 3mo MA through November 2012, but ahead of 47.2 3mo MA through February 2010, ahead of 52.1 3mo MA through February 2011 and ahead of 50.2 3mo MA through February 2012.

Chart below summarises the shorter-range data for the two core indices.

Two charts plotting other principal components of the overall index:

Focusing on few sub-series of interest:

• Employment sub-index remained above 50.0 in February, posting a reading of 52.5 - the shallowest expansion since September 2012, but marking a sixth consecutive month above 50.0. 3mo MA now is at 54.1 and previous 3mo MA through November 2012 was at 53.0. Good news - in 2009-2012 3mo MA through February was below 50.0 in every year. Bad news is that Employment is closely linked with Profitability (see below).
• Business Confidence / Expectations 6mo out are continuing to fly high, propelled most likely by a combination of current upbeat conditions (the two series: Expectations and Current Conditions show the strongest co-determining relationship of all series, suggesting that the real driver for Expectations is not actual anticipation of the future events, but rather firms' assessment of current conditions) and by the endless barrage of feel-good propaganda from the business lobby and the State. The last, third factor, is human nature (aka 'winner's curse' bias). We expect things to get better because they were pretty damn awful until now and for a very long time... Come on, folks, let's face the music - unless you are a transfer-pricing arbitraging MNC, things are hardly getting any better. And, unless you live in the world of Googlites (aka 25-30 year olds with no attachment to anything save a party on a weekend) you are facing a mountain of debt, shrinking assets and wealth, higher taxes and the prospect of more of the same. What 'confidence at 69.1' can we have in mind? 
• Oh, and to top things up - you'd think that Confidence comes from higher profits for the firms... Well, in the Wonderland of Transfer Pricing it is not and hence in Ireland we have Services sector where profitability is shrinking (41.5 in February on 49.2 in January) for 62 consecutive months now (since January 2008, every month there was negative profitability growth, with the average shrinkage at 41.9 - aka very very very deep contraction), but businesses confidence has been up on average at 60.9 - aka very very strong confidence growth on monthly basis).

If anything, aside from the major trend outlined in the first set of bullet points above, the point on Confidence and Profitability is the second main conclusion from the longer-term data analysis, for it exposes the surreal nature of the Irish economy - economy distorted by extreme transfer pricing and tax optimisation activities of the MNCs.

Now, let's touch briefly on the main short-term observation from today's data release: the core drivers for each of the main sub-series:

• When it comes to Business Activity index, level support at 53.6 in February was provided by a broader base of sectors, with Technology, Media & Telecoms sector (TMTS) posting comparable expansion to Transport, Travel, Tourism & Leisure sector (TTTLS). This is similar to what was observed back in October 2011 and is an improvement on the trend that (at least over the last six months) have seen TMTS being the main and dominant driver of the index improvements.
• Business Activity Index for Expectations out 12 months ahead was dominated (as in every one of the previous 6 months) by TMTS, with Business Services Index coming in as the second upside driver (same as in January 2013).
• TMTS was the main driver for the third consecutive month behind growth in Incoming New Business, while Financial Services were the main driver over the last 4 months behind the growth in the Incoming New Export Business.
• In Employment generation, TMTS again outstripped all other sectors for the third consecutive month, which, of course, means we are only reinforcing the demographic misalignment emerging in the economy with main generation of new jobs taking place in sectors that are more reliant on importing skills from abroad.
• TMTS was the only sector in which profitability improved in February 2013 (same as in December 2012 and January 2013). In all other sectors, profitability was in decline for the third consecutive month. Why, you might ask? Interestingly, TMTS saw the sharpest countermovement in input/output prices, with input costs posting sharpest acceleration in February, and output costs posting the sharpest deterioration. In any normal economy that would mean shrinking, not expanding, profit margins. But in Ireland, of course, there is little normal about the TMTS sector dominated by the massive MNCs aggressively using their Irish activities for tax arbitrage from their European and even global operations.

Some interesting stuff, eh? You bet official 'analysis' of Irish PMIs is not talking about any of this...

5/2/2013: Services PMI v CSO Services Index... hmm...

In the previous post, I raised some questions about the real tangible quality of the PMI data for Services when it comes to reflecting upon the Irish economy. Here is a bit of more disturbing evidence. I plotted in the chart below the contemporaneous index of services sectors activity as measured by the CSO and the services PMI.

In short - there is no relationship. It is effectively zero. So either PMI does not accurately reflect services activity, or services activity index doesn't reflect it. Or more likely - both series have serious shortfalls. However, overall the question about PMI for services validity in providing an insight into the real economy is still open...

5/2/2013: Irish Services PMI for January 2013

The latest data from Services PMIs - released this am - is full of positive news. In this light, it is both hard and, perhaps, unjust to rain on the parade with detailed analysis of hypotheticals. But, alas, this is what needed for the dose of reality check.

Before we do, here are the straight forward numbers.

Overall headline Business Activity index rose to 56.8 in January 2013 from seasonally adjusted 55.8 in December 2012 - a strong level of activity that marks the highest index reading for any month since August 2007 when the index reached 57.0.

This is the good bit. And it gets even better when we consider 3mo MA to smooth out some of the monthly index volatility: current 3mo MA stands at 56.2, ahead of previous 3mo MA through October 2012 of 53.9. Year ago, 3mo MA was at contractionary 49.8 and in 2011 the same period 3mo MA was at 50.7 against 2010 3mo MA through January reading 46.5. In other words, we have solid increase in 3mo MA, which is more sustainable reading than monthly series.

12mo MA is at robust 53.0, implying that last 6 months have seen, on average, stronger activity in the sector (55.1) than February-July 2012 (50.9). Also good news.

Chart to illustrate:

Per chart above, Business Activity expansion was backed by New Business Index growth. New Business Index reading reached 56.6 in January, up on already strong reading of 56.4 in December. However, unlike overall activity, new business expansion was not as dramatic in historic terms, with January marking third fastest rate of expansion in 6 months. 3mo MA through January 2013 stood at 56.5 - faster than 54.5 3mo MA through October 2012. In 2012, same period 3mo MA was 49.9 and in 2011 it was 47.6, while in 2010 it was 46.8, which means that the last 3mo MA expansionary reading (and strong one at that) is the first expansionary reading in 4 years.

12mo MA for New Business Activity is now at 53.4, with last 6mo MA at 55.5 against first 6mo MA at 51.3, suggesting that New Business Activity is a major driver behind Overall Business Activity acceleration in the last 6 months.

Chart below shows snapshot of both indices over shorter period of time, allowing for better understanding of the underlying short term trend:

The close coincidence in series since November 2011 is indicative that sector activity is gaining momentum on foot of New Business Orders (as opposed to jobs inventories and backlogs) and trend acceleration since July 2012 also shows sustained momentum.

All of this is good news. And there is more. New Export Business index rose to 63.5 in January from 61.3 in December, marking the highest reading in series history with previous record of 63.3 reached in June 2006. 3mo MA through January 2013 is at 60.3, against previous 3mo MA of 55.5. This contrasts with 3mo MA through January 2012 at 52.4, 3mo MA through January 2011 of 53.1 and 3mo MA through January 2010 of 52.6.

This blistering pace of activity should, however, be treated with some concern. Now, take a look at the rates of expansion here, contrasted with rates of robust rises in Employment. Employment index rose to 56.5 in January from 53.4 in December. The Index posted above 50 readings in 5 months in a row and 3mo MA for the index is now at 54.6, up on previous 3mo MA of 51.3. Over the last 6 months, thus, employment in services sector have expanded rather rapidly.

Meanwhile, profitability in the sector continued to contract: Profitability Index (I compute my own for comparative analysis with Manufacturing, but let's stick to 'official' Profitability reading for now) remained well below 50, at 49.2, marking 62nd consecutive month of contracting profits in the Services sector.

Now, ask yourselves a simple question: 62 months of uninterrupted collapse in profits, plus over the same period 11 months of expanding employment, plus 21 months over the same period of rapidly growing exports, equals what? How can catastrophically less and less profitable business retain relatively robust employment levels and expand dramatically exports? Oh, well, the answer to this dilema is a simple, but unpleasant one - most of our services activity (and roughly speaking 90% of our services exports activity) is dominated by the tax-optimising MNCs. In other words, while the headline numbers are rosy, the underlying reality is probably less tangible to the Irish economy than we would like to believe. Employment growth in these MNCs-led sectors is primarily focused on importing skills (so no effect of reducing unemployment), while shrinking profitability in the Business Services sector and Transport, Travel, Tourism and Leisure sector (which led in profitability decline) means lower revenues for the Exchequer and lower indigenous employment.

One thing Irish Stuffbrokers issuing upbeat reports on PMIs basis are too lazy to check is the composition of what they are talking about at the aggregate levels. Here's a simple snapshot of employment increases over the last 6 months, reported in the PMIs:

Contrasted by 6mo data for profitability:

And contrasted again by New Export Business figures:

It turns out, on average, over 6 months, the ENTIRE range of PMI-covered services subsectors have managed to post increases in employment, and even mor robust rises in New exports, with largest rises, by far in the MNCs-dominated ICT services and Financial Services. But Business Services - the ones that are suffering from deep cuts in profits - are also posting rises in exports and employment. This is either bonkers data collection, or a severe selection bias toward MNCs with tax optimisation, not real activity on their minds.

You can see that new exports are acting to grow current employment, while shrinking profitability seemingly has no effect on current employment (current points marked in red) here:

More on profitability conditions and employment in both Manufacturing and Services PMIs in subsequent posts, but overall, the data is very positive. It is just worth asking a question just how much relevant is this data to real economic activity?

5/9/2012: Services PMI for Ireland: August

I covered manufacturing PMI for Ireland for August in the previous post (here). This time, lets take a look at the Services Sector PMI released today by NCB.

In July, the Services Sector PMI registered the reading of 49.1 - the third consecutive month of below-50 readings, albeit at statistically insignificant difference from 50. In August, the headline Business Activity index reached 51.7, which is above 50, though once again not statistically significantly so. Still, good to see the number above 51, and at 51.7 we have a signal of modest growth.

Headline trends are:

• 3moMA is at 50.2, previous 3 months average is at 51.1, so we are still in a fragile bounce above 50. 
• 12mo MA is at 50.8, which compares relatively poorly to 12moMA through August 2011 (51.7) and 12mo MA through August 2010 (54.7).
• New Business Activity sub-index also reached above 50 in August, up to 52.6 compared to 49.5 in July.
• New Business 12mo MA is at 50.6 and this compares to same period MA in 2011 of 48.8 and same period MA for 2010 of 53.3. 3moMA is at 50.8 still below previous period 3mo average of 51.5.

You can see the moderating in volatility flat trend just above 50.0 for both series in the charts above that set in around April 2010. Good news, this is above 50.0. Bad news it is throwing fewer and fewer upside surprises. 

To the slight downside on the news front, New Export Business sub-index moderated growth signal from 55.7 in July to 54.1 in August, albeit this is still significantly above 50.0 line. I wouldn't call it a weak reading by any means, but a slippage in the rate of growth.

• 12mo MA through August 2012 is at 53.5 against same period 2011 at 51.0 and 2010 at 54.6.
• 3mo MA is now at 54.7 and this is an improvement on previous 3mo period of 54.1.
• Overall trend is relatively strong here and is sustained, which is good news.

In the chart above another notable trend is in Employment, which registered sub-50 reading once again in August - for the fourth month in a row - at 49.1. The decline in employment sub-index, however was moderated relative to July reading of 48.3.

• 12mo MA through August 2012 is at 48.2 which is virtually identical to same period average of 48.1 in 2011 and 2010.

Profitability also declined and is now at 42.9 - well into contraction territory. 

More on employment and profitability signals in subsequent posts.

Overall we have an improved performance in the Services sector in August, compared to May-July period, which is good news. Confidence is running high, rather too high (relative to actual activity levels), but that is relatively normal coming out of depressing three months around the end of Q2.

4/8/2012: Business Confidence in Ireland: KBC/ICA v PMI

As promised in the previous post covering the Services PMIs, I wanted to provide some analysis of confidence survey component of the PMIs. This is in light of this week's absolutely bizarre Business Confidence Survey report from KBC/ICA covered briefly here. The reason for why I am giving this survey so much attention is a simple one: the survey authors, in particular KBC, should have done their basic homework before they released the results. This homework would have entailed linking current activity to future business expectations to find out the size of the bias in the later induced by the former.

Here's the core point: businesses (not only in Ireland) tend to report upbeat expectations compared to current activity. And they tend to do so on average - independent of the current conditions. In addition, their expectations of the future are driven by the present conditions, which also implies systemic biases. To see this, simply link current activity to future expectations:

Not to induce any judgement on causality direction - the above pretty clearly shows that on average, expectations are more upbeat than actual activity: a 1 point change current activity is associated, in Irish services firms case, with 14.6 points higher expectations. In other words, we can have a tanking economic activity consistent with deep recession (as signaled by current activity PMI of, say 40) and yet business expectations on average will be reading 54.9 - a robust expansion.

Run through these numbers:

• Since January 2008, Confidence reading for PMI averaged 60.2 - a massively 'upbeat' indication taken on its own. Meanwhile, actual PMI reading averaged 46.8 - a recessionary level reading for the Services sector.
• In last 6 months, actual PMI averaged 50.8, Confidence for the 6 months period through January 2012 is 60.7.

Funny thing, this Confidence survey data is...