04/08/2011: PMIs, Exports-led Recovery and Jobs - July 2011 data

Based on Manufacturing PMI (see detailed post here) and Services PMI (details here), let's chart Irish economy's progress on the road to the recovery.

First, consider the issues of employment and core PMIs:
So in terms of economic activity, we have moved:

• In Manufacturing from the recovery with mild jobs creation in January 2011 to both employment and output contractions in July 2011.
• In Services, a jobless recovery in January 2011 remains such in July with July reading showing accelerated joblessness and slower growth in output.

Summary of employment indices is extremely worrying at this stage:
Now, in terms of exports-led growth:
While exports performance continues to the upside in both Services and Manufacturing, in both sectors, exports growth is associated with declining employment, not rising. This is now an established trend with both June and July showing jobs declines amidst exports growth in both sectors, in contrast with May, when exports growth in both sectors supported fragile jobs creation.

So far, since January 2008, there were:

• 17 months of jobs-destruction associated exports increases in Services, against just 6 months where jobs creation was associated with exports growth
• 20 months of jobs destruction during coincident exports expansions in Manufacturing, against just one month when jobs creation underpinned exports growth.

Good luck to ya all who hope for an exports-led recovery to yield significant reductions in unemployment any time soon.

04/08/2011: Services PMI for Ireland - July 2011

NCB Economics released Services sector PMI for Ireland for July. I posted on latest data for Manufacturing PMI yesterday (here).

Unlike Manufacturing PMI, Services sector data points to continued expansion, albeit at a slower pace. Headline numbers are:

• Overall Services sector business activity stood at 51.7 (above 50, but not statistically significantly) in July, down from 52.4 in June. Year-to-date average is now at 52.1, against YTD 2010 average of 51.0 and well ahead of YTD average for 2009 of 36.8. 3mo average through July 2011 is 51.5, below 3mo average through April 2011 of 52.1. Hence, overall, disappointing result, but still remaining in the expansionary territory consistently since December 2010.
  
• New Business sub-index in July fell marginally to 49.2 from 49.4 in June, marking third consecutive month of below 50 readings. YTD 2011 average is now at 50.0 and marginally below 50.2 reading for January-July 2010, but well ahead of the abysmal 36.2 reading for the January-July 2009 average. 3mo average through July, however is firmly in the contraction zone at 48.9 against 3mo average through April at 51.9.

A more recent snapshot of data:
Other sub-indices also showed renewed weaknesses:

• Backlogs of work posted a sharp monthly decline from 44.5 in June to 43.9 in July, suggesting severe weaknesses in the short-term pipeline. The sub-index is now in the contraction territory for every month since July 2007.
• New export business crossed over into contraction territory for the first time since December 2010, with July reading of 49.6 from June reading of 53.1. Year-to-date average for 2011 is now at 53.7, dangerously close to 53.6 reading in the same period of 2010. Most recent 3-mo average is at 52.4, down from previous 3mo average of 54.6.
• Business expectations reading was the only one that posted positive change, rising from 60.3 in June to 62 in July - a high and strong reading for the indicator. However, 3mo average through July 2011 - at 61.5 - is still below 3mo reading through April 2011 (66.5).

On profitability side:

• Output prices signaled continued and deepening deflation at 42.3 in July from 43.5 in June, marking 4th consecutive month of dropping output prices.
• Input prices also eased in index reading, but remain at inflationary levels, with July reading of 50.6 down from June 51.8.
• So prices wedge acted to reduce further profit margins. Profitability sub-index of PMI has moved to 44.9 in July, marginally better than June 44.8, but still deeply below 50.
  

Derived index of profit margins in Manufacturing and Services - computed by me, based on NCB data - now show a slowdown in the rate of profit margins depletion in Manufacturing, but widening in Services:

• Profit margins index in Manufacturing in July stood at -15.01, down from -16.22 in June and well below 12 months average, the 3mo average and comparable readings for 2010.
• Profit margins index in Services had reached deeper into contraction territory with -16.40 reading in July against -16.02 reading in June. The 12mo average stands at -14.6.

So just as in the case of Manufacturing, Services PMI signals disappointing results for July 2011 and weak signals for forthcoming months.

05/07/2011: Employment in Services and Manufacturing - June 2011

As promised earlier, analysis of employment data from Manufacturing and Services PMIs for June 2011.

• Headline on Services PMIs: After posting only marginal growth in the previous month at 50.5, Irish services activity rose at a faster pace in June to 52.4. However, overall Q2 2011 average at 51.0 signals lower rate of expansion than Q1 2011 at 53.4. Current index is above it's 12mo MA of 51.6.
• Headline on Manufacturing PMIs: June activity signals a slowdown at 49.8, down from expansionary May reading of 51.8. Q1 2011 expansion of 56.1 average has moderated through Q2 2011 to 52.5. 12mo MA is at 52.6.
• Employment sub-index in Manufacturing showed further acceleration in the rate of decline from 49.9 in May to 48.3 in June. The sub-index now stands below 12mo MA of 50.2. Q1 2011 average was expansionary 53.2 and despite two consecutive months of contractions, Q2 sub-index still reads 50.7. This compares favorably relative to Q3 2010 reading of 46.8 and Q4 2010 reading of 49.9. Employment in Manufacturing has now fallen for two months, breaking expansionary readings trends established over December 2010-April 2011.
  
• Employment sub-index in Services remained flat at 48.1, signaling continued contraction in May and marking a second consecutive month of contractions since an outlier expansion in April 2011 to 51.1. 12mo MA is now at 48.7, while Q1 2011 reading was 49.2, accelerating down to 49.1 in Q2 2011. In comparison, Q3 2010 reading was 48.9 and Q4 2010 reading was 47.6, so the rate of jobs attrition in the sector has declined in H1 2011 relative to H2 2010. With April 2011 out-of-line reading of expansion, this index remains in contractionary territory in 39 out of 40 last months

With both Manufacturing and Services signaling contractions in employment, we are now firmly into jobless recovery territory in Services and stepping into the recessionary territory for Manufacturing.

It is worth noting that volatility of employment sub-index has risen since the beginning of the crisis in Manufacturing, but declined in Services, most likely due to the persistent trends in domestic services. The same pattern is true for core PMIs.

05/07/2011: Services PMIs: June 2011

Services PMIs for Ireland are out today for June from NCB Stockbrokers. Last week, manufacturing PMIs came in disappointingly low, signaling renewed contraction in the sector (see details here). The headline numbers for services are:

• Core PMI reading for Service has risen to 52.4 in June from 50.5 in May - a reasonably strong increase. Controlling for volatility, last 3mo average stands at 51.0, down from the Q1 2011 average of 53.4, and below 12mo MA of 51.6, which means that the current reading is still short of Q1 2011 average, but ahead of it's own quarter average and historical average.
• Q2 2010 period average was 52.9, ahead of Q2 2011 average of 51.0. To compare to the dire conditions in 2009 - Q2 2009 average was 38.0. Now, remember, PMI is not an absolute measure of activity, but a relative one, which means that given a deep fall-off of 2009, we need strong growth - again, my benchmark would be to see PMIs in 60s+ - in 2010 and 2011 to compensate for the declines in 2009. This not happening. Still, it is good to see the index sticking above 50 for the 6th month in the row.

• New business index - my concern last month - has notched up on May, rising from 48.2 in May to a still contractionary 49.4 in June. Current reading is consistent with the Q2 2011 average and is down on both Q1 2011 average of 50.9 and 12mo average of 49.9. Q2 2010 reading was 52.6. Again, as with core PMI Q2 2009 reading was 37.5 - abysmally low, but there was no recovery since then, as new business index was stuck below 50 in all months except April-August 2010 and February-April 2011, furthermore, index never reached beyond 54.0 (June 2010), so no momentum in terms of new business orders recovery.
  

Note in the above chart, that we now are two consecutive months running with core PMI signaling weak expansion, while New Business Orders PMI stuck in contraction zone.

In terms of other components - note, I will be covering employment in a separate post for both Services and Manufacturing PMIs:

• Backlogs of work have declined again in June - from 44.9 in May to 44.5 in June, implying that service providers shifted more resources to complete unfinished work. Q2 2011 average stands at a contractionary 45.3, down from Q1 2011 average of 48.0 and 2010 Q2 average of 48.8. 12mo average reads 45.6.
• Employment index remained flat at contractionary 48.1, down from expansionary 51.1 in April. With April 2011 out-of-line reading of expansion, this index remains in contractionary territory in 39 out of 40 last months. More on this later.
• Output Prices/Charges index has fallen further into contraction (deflation) territory, declining from 43.9 in May to 43.5 in June and marking 35th consecutive month of declines (in a separate post I will be covering the issues of profit margins, so stay tuned for more on output/input prices divergence).
• Input prices have remained in expansion territory, although the pace of inflation has moderated further from 54.7 in May to 51.8 in June, with June marking 3 consecutive month of moderating input prices growth.
• Confidence / Business Expectations index has shown lower rate of growth, with June reading of 60.3 coming in behind May index reading of 62.3. Overall, Q2 2011 average was 63.1 and Q1 2011 average was 65.8, while 12mo average stands at 64.0, so clearly confidence is getting stronger slower. This is largely irrelevant in my view, as the index reading was averaging 50.7 (growing confidence) during the abysmal Q2 2009, just as other components were showing massive fall-off the cliff for services activities in Ireland. In addition, I have previously shown that over the entire life-span of the series data, confidence failed to act as a predictor of any real future activity (core PMIs, New Orders, New Export Orders or Employment) in the sector.
  
• New Export Business index continued to signal expansion, albeit at lower rates with June index standing at 53.1 down from 54.4 in May. Q2 2011 average now stands at 54.0 against Q1 2011 average of 54.8. 12mo average is 53.6, while Q2 2010 was 56.5. So data suggests a clear slowdown in the rate of exports growth. This, of course, is an important indicator as CSO does not report monthly series for services exports.
  
• Finally, profitability index has moderated the fall recorded in May, rising from contractionary May reading of 41.4 to still contractionary 44.8 in June. June reading is now ahead of Q2 average of 43.7, and Q1 2011 average of 43.5, but behind Q2 2010 average of 48.0 and behind 12mo average of 45.5. Again, more on profitability in a separate post

02/06/11: Manufacturing PMIs

A quick run through yesterday's PMIs for Irish manufacturing sector, released by NCB. A more detailed analysis will follow when Services PMIs are released.

As you have heard by now, May manufacturing PMIs have shown some surprising (to some) weaknesses. Here are the headline numbers:

• PMIs headline reading is now 51.8 down from 56 a month ago. Year ago, the same reading stood at 54.1. 12-mo average is 52.8 and latest 3mo average is 54.5. Hence, the slowdown in growth is quite pronounced indeed.
• Output index reading stands at 52.6 in May, down from 58.7 in April. 12-mo average is at 54.4 and over the last 3 mo average reading was 56.4. Again, strong slowdown in growth.
• New orders index declined from 57.3 in April to 52.9 in May and now stands below 12mo average of 53.6 and well below 3mo average of 56.0. Compared with the same period in 2010, the index has fallen 2.5 points, but it still significantly above the disastrous 37.7 reading for May 2009.
• New Export Orders index has declined marginally to 58.7 in May, from April's 59. Export Orders index is still above 56.3 12-mo average, but below 3mo average of 59. The index ia also lower than the reading attained in May 2010 - 59.5.
• Employment sub-index posted a strong decline from 54.0 in April to 49.9 in May, crossing back into negative growth territory for the first time since November 2010.

Charts to illustrate:


Quick note on interpretations of PMIs for Ireland. Overall, historically, Irish PMIs are highly volatile series. For example, for core PMIs:

• Full sample (1998-present) standard deviation is 4.667
  
• Since 2000, standard deviation is 4.619, and
• Since 2008 (crisis period) standard deviation is a massive 6.17

A similar picture applies to employment series (and indeed all other sub-components of the PMIs):

• Full sample (1998-present) standard deviation for Employment sub-index is 4.787
• Since 2000, standard deviation is 4.558, and
• Since 2008 (crisis period) standard deviation is a stronger 5.778
  

In terms of the rates of change mom:

• PMIs for Manufacturing dropped 4.2 points mom in May
• 1STDEV for full sample is 1.5 points
• 1STDEV for the sub-sample since 2000 is 1.574 points and
• 1STDEV for the sub-sample since 2008 is 2.289

So May change does seem to be signifcant. On the other hand, Manufacturing PMIs crossed the 50 points line into growth territory back in March 2010 and remained there with exception for September 2010. Yet, the economy didn't really show much of a turnaround. May be, just may be, that hope of an exports-led recovery is not as powerful as the Government thinks it is?

Either way, of course, I'd rather see PMIs at above 60 reading, than heading for a downward territory.

01/03/2011: Manufacturing PMIs

From NCB Manufacturing PMI report:

“Manufacturing production increased at the third fastest pace in the history of the survey, which began in May 1998. According to respondents, higher output mainly reflected strong new order growth.

Total new business rose at the sharpest pace in more than eleven years in February. New export orders expanded at the second-steepest rate in the series history, with the EU and Asia highlighted as sources of growth.

The second consecutive accumulation of backlogs of work was solid, and the fastest in the history of the series, in line with strong new order growth.

Employment growth hit a four-and-a-half year high in February as firms raised staffing levels in response to higher workloads. Job creation has now been recorded in each of the past three months.

Input cost inflation accelerated for the second month running to the steepest since July 2008. Higher prices for raw materials was the main factor behind increased input costs, with fuel and steel mentioned in particular.

As input prices rose, Irish manufacturers increased their charges accordingly. Furthermore, the marked inflation of output prices was the sharpest in four years.

Purchasing activity increased at the fastest pace since December 1999 in February, in line with rising production requirements. Anecdotal evidence suggested that suppliers had struggled to cope with rising demand for inputs, resulting in delivery delays.

Lead times lengthened markedly again over the month.

Despite a near-record rise in purchasing, preproduction inventories decreased modestly as inputs were consumed by production. Stocks of finished goods also declined in February, albeit only marginally. Panellists reported that post-production inventories were utilised to partly satisfy the sharp rise in new orders."

Nothing to add to this – across the board, strong performance and most encouragingly, expansion in employment prospects is holding over time and even getting stronger.

Perhaps one suggestion going forward - can the folks from NCB get us a breakdown of MNCs led activities from domestic respondents going forward.

Now, updated charts:

1/02/2011: Ireland's Manufacturing PMI

Boom times arrive in Irish manufacturing - according to the latest NCB Manufacturing PMI for Ireland.

Here are the updated charts and my commentary:
Strong drivers for PMIs in Manufacturing in January 2011 were:

• New orders (up to 58.8 in January 2011 against 53.2 in December 2010 and 12-mo average of 52.5), driven by New Export Orders (up to 60.3 in January 2011 against 54 in December 2010 and 12-mo average of 56.1).

Headline PMI rose to 55.8 from 52.2 in December signaling strengthening of growth in the sector. On seasonally adjusted basis, January 2011 reading was well ahead of 51.8 average reading for 12 months preceding, and 51.4 average reading for Q4 2010. In Q1 2010 the same average reading was 49.9 (signaling contraction in the sector) and in Q1 2009 it was 35.8 (a veritable disaster!).

A close-up:
Backlogs and inventories:
Again, good performance with all signlas going in the right direction here.

Employment index is now for the second month running showing expansion, which is good news. Bad news - employment index is still relatively weak. But this is the first two-months consecutive expansion signal we had since October-November 2007.

Worrisome trend is on output-input prices gap, which is showing significant inputs price pressures.

Let's take a look at employment figures a bit closer:
You can see the divergence between services and manufacturing PMIs in both core PMIs and employment index.

So mapping the recovery:
Right move, in right direction for manufacturing. Let's hope services surprise on the positive side as well...

It is worth remembering that:

• Manufacturing sector in Ireland is heavily exports-oriented and as such is less labour-intensive than more domestically-oriented manufacturing in, say, France
  
• Manufacturing in Ireland is less labour-intensive than services (which, per December - the latest data due for an update in the next few days - is still tanking)
• Net effect of manufacturing growth - on employment is negligible, but still great news!

05/01/2011: PMIs and employment trends - December 2010

This is the last post in the series of three covering PMIs. The first two covered two sectors of the economy: Manufacturing and Services. As before, the data was released by the NCB Stockbrokers.

As I mentioned in the first post, PMIs serve important function - they act as close-lead indicators of economic activity ('close' referring to short lags between PMIs and economic performance). One of the most pressing issues in Irish economy today is unemployment and PMIs provide employment outlook that signals (albeit imperfectly) where we are heading in terms of jobs creation. Here are the two series for PMIs

and the same for employment:
So while Manufacturing is signaling weak growth across both output and employment, Services are showing neither:
Weighted (by economy weights) average of the two points in the chart above places December squarely into the Recession Area along the axis that barely enters Optimal Growth Area. It is worth noting that longer-term trends (and these are strong with 0.847 RSq for Services and even stronger 0.892 for Manufacturing) do not support Jobless Recovery. In contrast with historical experience, this is exactly where we are heading in Q1-Q2 2011 per chart above.

Economics 2/12/10: What PMIs tell us about the job market

An interesting additional point of view on jobs market. Today's Manufacturing PMIs suggest no improvement in November jobs outlook in Manufacturing sectors:
So far, there are absolutely no signs of jobs creation here with employment PMIs indicators:

• Services - October reading (latest so far) at 46.2 - well below expansion 50+) and declining on September reading of 49.8; and
• Manufacturing - November reading at 49.3, signaling worsening performance from already contractionary 49.8 in October.