25/3/2012: QNA Q4 2011 - Part 3

In part 1 of the QNA analysis we covered annual results for annual GDP and GNP in constant prices terms. Part 2 analysis focused on GDP/GNP gap and losses in national income compared to pre-crisis trend. Here, we cover some quarterly trends for GDP and GNP based on constant prices data.

Let's consider changes by sector:

• Agriculture, forestry and fishing sector output fell 5.1% yoy in Q4 2011 following a 9.34% rise yoy in Q3 2011. In Q4 2011 the sector accounted for just 1.26% of the total quarterly GDP. Compared to Q4 2007 the sector output is now down 6.0%.
• Industry output rose 2.3% yoy in Q4 2011 after rising 6.25% in Q3 2011. The sector is now accounting for 28.34% of the quarterly domestic output. Sector output is now down 3.3% when compared against Q4 2007.
• Building & Construction sub-sector of Industry sector posted yoy decline of 6.7% inQ4 2011 that follows on 39.32% drop in Q3 2011. The sub-sector is now accounting for just 2.62% of total output and is down 55.0% on Q4 2007.
• Distribution transport and communications sector shrunk 0.6% yoy in Q4 2011 which follows 4.99% drop in Q3 2011. The sector accounts for 13.23% of total output and is down 17.3% on Q4 2007.
• Public administration and defence sector shrunk 3.8% yoy in Q4 2011 which follows on a 6.53% contraction in Q3 2011. The sector now accounts for 3.58% of the domestic output and is down 6.5% on Q4 2007.
• Other services including rents output contracted 3.1% yoy in Q4 2011 following on a 5.14% contraction in Q3 2011. The sector accounts for 42.37% of the economy and is down 12.5% on Q4 2007.
• As the result of this, GDPat constant factor cost expanded in Q4 2011 by 1.1% yoy and this follows on a rise of 0.88% in Q3 2011. This metric of domestic output is now dow 10.6% on Q4 2007.
• Taxes net of subsidies are down 2.3% yoy in Q4 2011 and this follows a 2.76% drop in Q3 2011. This accounts for 9.70% of GDP and the category is now down 30.0% compared to Q4 2007.
• Headline GDP at constant market prices rose 0.7% yoy after expanding 0.52% in Q3 2011. The GDP at constant prices in Q4 2011 was 12.8 below that in Q4 2007.
• Net factor income from the rest of the world (aka largely transfer pricing net of receipts by Irish corporates and individuals on their foreign investments) grew 59.9% yoy in Q4 2011 which follows on 7.41% growth in Q3 2007. These transfers now account for 18.51% of our GDP and were running 10.0% ahead of the levels recorded in Q4 2007.
• Headline GNP in constant prices in Q4 2011 fell 7.1% yoy following a 1.18% contraction in Q3 2011. National income in constant prices is now 16.6% below that attained in Q4 2007.
• GDP/GNP gap stood at 18.51% in Q4 2011 slightly down on 20.18% in Q3 2011.

Charts:

More sectoral analysis to follow in the next post.

15/3/2012: Irish Industrial production & Turnover for January 2012

Industrial production & turnover figures are out for January 2012. CSO headline: "Industrial Production increased by 0.7% in January 2012".behind the headline, things are not so rosy. Here are the details.

Industrial production index for Manufacturing rose in volume terms from 109.6 in December 2011 to 110.3 in January 2012 - that's on of the ca 0.7% increases mom. Series are extremely volatile, so stripping short-term effects:

• Yoy index is down 0.18%
• Compared to same period in 2007 index is down 3.35% - implying that with all records busting exports, industrial production volumes in Manufacturing remain below pre-crisis levels.
• Compared to 2005, manufacturing activity is only 10% up
• Comparing 3mo average for Nov-2011 - January 2012 to 3mo average for Aug 2011-Oct 2011, the index is down 7.5%
• Comparing last 3mo average to same period a year ago, the index is down 2.9%

Still, good news, index did not fall in January.

All Industries index increased from 107.5 in December 2011 to 108.3 inJanuary 2012 - the core 0.74% rise, but:

• Yoy index is down 0.5% and it is down 4.2% on January 2007
• Comparing 3mo average for Nov-2011 - January 2012 to 3mo average for Aug 2011-Oct 2011, the index is down 7.4%
• Comparing last 3mo average to same period a year ago, the index is down 3.2%
• In 7 years, Industrial output rose by just 8.3 cumulative in volume

Modern Sectors fared much better - in monthly terms the index went up 4.9% in January 2012, and year on year the index is up 4.1%. That said:

• Comparing 3mo average for Nov-2011 - January 2012 to 3mo average for Aug 2011-Oct 2011, the index is down 9.5%
• Comparing last 3mo average to same period a year ago, the index is down 3.2%
• In 7 years, Industrial output rose by just 27.2% and since January 2007 the index is up 8.5% cumulative in volume

So some shorter-term pain, but overall, nice performance. Of course the trend (as shown in the chart below) is clear-cut and strong.

Traditional sectors continued to take the beating: down from 88.7 in December to 82.2 in January - a mom drop of 7.4% - the steepest in 4 months. The things are bad:

• Yoy volume of production in Traditional Sectors is down 8.2%
• Comparing 3mo average for Nov-2011 - January 2012 to 3mo average for Aug 2011-Oct 2011, the index is down 6.1%
• Comparing last 3mo average to same period a year ago, the index is down 4.2%
• In 7 years, TraditionalSectors volume fell 18% and since January 2007 the index is down 22.9% cumulative in volume

Relative contribution of Traditional Sectors to the economy compared to Modern Sectors is shrinking and the rate of contraction accelerated in January 2012, as shown in the chart below:

Things are worse on the turnover indices side with price deflation took bites out of the value of our economic activity:

• Manufacturing sectors turnover fell from 107.8 in December 2011 to 98.1 in January - a decline of 9% mom. It is now down 3.8% yoy and 14.3% below January 2007. The index is down 2% on 2005. Over last 3 months the index actually up on average 2.8% compared to 3mo average for August-October 2011 and 5.0% above the index reading a year ago, back in November 2010-December 2011.
• Other broader sector - Transportable Goods Industries turnover also fell mom - down 8.8% and is down 3.9% yoy. The pattern of changes is pretty identical to that in Manufacturing.

Looking forward, New Orders index for all sectors came in at a disappointing 98.5 - the lowest reading since April 2011 and 3.7% below January 2011 levels. The index is down 8.9% yoy and 15.8% on January 2007. The historical trend remains firmly downward, but shorter-range trend since january 2010 is strongly up. 

Yoy, New Orders declined 1.9% in Food Products (mom decline of 5.7% in January), rose 5.0% in Beverages (mom rise of 1.2%) and increased 5.5% in Chemicals and Chemical products (+2.7% mom). There was a huge fall off in New Orders in Basic Pharmaceutical Products and Preparations - down 6.9% yoy and 26.4% mom. Computer, electronic and optical products are down 4.3% yoy and 1.2% mom. Do note the patent cliff sighted above - dramatic - and will translate into trade figures as well. Please keep in mind - Government has been saying they have prepared for this.We shall see once trade data & QNAs come in for H1 2012.

So some headline improvements, but overall, weak data.

22/12/2011: Retail Sales for November

Ok, folks, RTE is shouting "Biggest Retail Sales Rise Since March" (see link here) but you do know to turn to this blog to see the real numbers. So here are the updated charts and historical trends and some analysis.

It is worth noting that my Retail Sector Activity Index for October has predicted this uplift:
"A large jump in consumer confidence in October (to 63.7 from September reading of 53.3) is the core driver of improvement in the  overall Index od Retail Sector Activity, which now stands at 102.2 - above the expansion level of 100. This means that we can expect a small uplift in retail sector activity in months ahead, but this uplift can manifest itself through improved volumes of sales (value static, so margins declining) or improved value of sales (inflation) or both (more demand-driven uplift)."
Please note that below analysis exactly confirms the above predictions.

However, this does not mean that I share with the RTE headline excitement about the actual sales indices performance in November 2011. Here's why:

First of all - general retail sales (including motors), seasonally adjusted:

• Value of retail sales rose from 87.2 in October to 88.2 in November, an increase of 1.1% mom, a drop of 0.68% yoy. History in making? Well, not really - in 2 months of October and November, retail sales rose 1.50%, in 2 months of May-June retail sales value grew 1.25% (statistically indifferent from 1.5% gain in last two months), and in 2 months between February and March they rose 1.26%, which is again identical - statistically-speaking - to the rise in last 2 months. So history is not being made here.
• Significantly, annual rate of declines has slowed down in November to -0.7%, which is the best reading since June when there was zero change in retail sales year on year, but then, again, in January value of sales was up 4.3% yoy and then in February it was down just -0.2% yoy. Now, again, no historical headlines here.
• Let's take a look at the trends. At 88.2 current reading is ahead of 3mo MA of 87.4 and 6mo MA of 87.7, but it is below 201 average of 88.86. In other words, current sales are worse than monthly average for 2010. And current sales are slightly ahead of 2011 monthly average to-date of 87.82%. Not that the RTE would bother mentioning that.
• Relative to the peak, value of retail sales is still down 24.10% in November.
• In Volume terms, there was a 1.6% monthly rise from 91.9 in October to 93.3 in November. This is statistically insignificant difference too. In 2 months through November, index of the volume of retail sales rose 1.97%, in May-June it was up 2.07% and we do know that it was not exactly boom time on the high street back then.
• Volume index is now down 0.8% yoy and 19.8% down on peak. 3moMA is at 92.23 and 6mo MA at 92.47. However, 2010 monthly average is at 93.6, which is ahead of November monthly reading. So, as with value index, the 'record sales' in November are lower than the average monthly sales volumes in 2010. 

Charts to illustrate:

Frankly, I am not seeing anything that jumps out on an extraordinary scale. Some uplift, most likely supported by the decline in foreign travel for shopping and by better weather conditions this year than in 2010, but hardly spectacular. Only notable increases yoy are in Non-specialized stores ex-Department Stores (where inflationary pressures drove value up 1.4% while volume was up only 0.5%), Fuel (where inflation was so rampant that value of sales rose 10.3% while volume of sales fell 3.7%) and Electrical goods (where season sales started early and cuts were running deep with value +0.5% and volume up 7.5% yoy). everything else was either down or flat. You tell me if this is something that we can cheer about?

Let's take another look at the pure index numbers: 

• Value index at 88.2 was the highest reading since June when it stood at 88.8. In last 12 months through November, index was in excess of 88.2 or equal to it on 5 occasions other than November 2011, which makes this month's reading oh, sort-of average.
• Volume index at 93.3 in November 2011 is the highest since 93.8 in June 2011 and is the 4th highest in the last 12 months - also not exactly a trend-breaking performance.

So adjusting for motors sales, core retail sales indices were:

• Value of core retail sales rose 1% mom from 94.6 to 95.6 in November. November 2011 reading is 0.1% ahead of November 2010 reading and the current index stands at the 5th highest reading level over the last 12 months.
• Relative to peak value of core retail sales is down 19.39%. 2010 monthly average reading is 97.57% - ahead of November 2011 reading. More ironically, year-to-date 2011 average monthly reading is 95.62 which is identical to the November 2011 reading.
• By all possible comparisons, November 2011 reading for the Value of core retail sales (ex-motors) is average.
• Volume reading reached 100.6 - the first over-100 reading since April 2011. Index is now up 1.8% mom and down -0.8% yoy. This is the set of numbers that excited the RTE the most.
• Yet, 2010 monthly average reading for this index was 102.7 - above the November 2011 reading. However, importantly, 2011 year-to-date average monthly reading is 99.7 - statistically insignificantly different from November 2011, but still below November reading in actual terms.
• Still, November 2011 is worse than the average month of 2010. Not exactly a strong performance.

Charts to illustrate:

Ok, let's summarize the above: supposedly we had an exciting retail sales month in November. Yet, by all measures CSO reports, November performance this year was worse than average monthly performance in 2010, and by 3 out of 4 measures reported by CSO, November was worse than the average month in 11 months from January 2011 through November 2011.

Oh, and as an aside, here are the comparatives in retail sales volumes across Ireland, EU17 and EU27 (data reported with a monthly lag here, so latest we have is for October sales):

29/11/2011: Retail Sales for October: Ireland

Irish retail sales continue on downward trend, with no respite.  I will be updating my exclusive Retail Sector Activity Index in the follow up post (so stay tuned), but here are the core headlines:

• The volume of retail sales index rose by 0.1% in October 2011 mom but is down 3.8% yoy. The volume of sales is now down 21.67% on peak. The index reading of 91.1 in October compares against 91.3 3mo AM and 92.1 6mo MA. In 2010 index average was 93.3 and 2011 to-date average is 92.0.
• There was no change in the value of retail sales on a monthly basis, however the annual change was -3.7%. The value index is now 25.6% below its peak. 3mo MA is at 86.7 against current reading of 86.5 and 6mo MA is at 87.5. 2010 annual average is 88.8 against 2011 average to-date of 87.7.

Charts below illustrate:

Focusing on core sales (ex-Motors):

• The volume of retail sales decreased by 0.2% in October 2011 mom, while there was an annual decrease of 3.6%. Core retail sales are now down 16.1% on the peak and 3mo MA is at 98.4 against October reading of 98.2, 6mo MA is at 98.8 and 2010 average is at 102.25 against 2011 average to-date of 99.5.
• There was a monthly decrease of 0.1% in the value of core retail sales and an annual decrease of 2.8%, with the value index now 20.6% below the peak. 3mo MA is 94.3, against current October reading of 94.2, and 6mo MA is 94.7. 2010 annual average is 97.6 against 2011 average to-date of 95.5.

Charts below illustrate:

So we are now in month 49 of core retail sales below pre-crisis peaks in both value and volume terms and no sustained bounce in sight. One can only wonder how on earth we still have functioning retailers left.

In October, Books, Newspapers & Stationery (-2.8%), Department Stores (-1.9%) and Electrical Goods (-1.7%) were amongst the categories that showed month-on-month decreases in the volume of retail sales. But have a closer look: seasonally adjusted sales excluding motors, fuel, bars and food are down 1.0% mom and 6.6% yoy in value and down 0.8% mom and 5.3% yoy in volume. So, basically, everything we buy that cannot be substituted for purchases in the Northern Ireland (though motors and food can, with some caveats) has tanked.

And in case you wondered: here's a chart showing annual rates of change in volume of sales for Ireland v EU27 and EA17

Clearly, things are turning around...

11/11/2011: Industrial Production & Turnover - September

Industrial production and turnover figures for September provide some interesting reading. Monthly figures are significantly volatile, so some comparisons are tenuous at best, but overall, despite some downward pressures, the figures are encouraging. Here's why.

Industrial production index for manufacturing has declined from 116.4 in August to 113 in September - monthly drop of 2.92%. Year on year, September 2011 is still up 0.18% although index is down on September 2007 some 0.1%. The average of the 3mo through September 2011 was 2.2% ahead of the average for 3mo through June 2011 and 2.1% ahead of the 3mo average through September 2010. September 2011 reading is ahead of 6mo MA of 112.3 and 12mo MA of 111.7.

All of the above suggests the slowdown in activity in September was not as sharp as we might have expected given the adverse news flow from the rest of the Euro area.

All industries index has fallen from 115.2 in August to 111.2 in September, registering a yoy decline of 0.1% and mom drop of 3.47%. The index is down 1.67% on September 2007. Just as with Manufacturing index, All industries index 3mo average through September 2011 was up 2.59% on previous 3mo period and also up 1.82% on 3mo period through September 2010. The index was also above its 6mo MA of 110.7 and 12mo MA of 110.2. Again, this suggests that the slowdown is still shallow and there is some robustness in the series.

Both indices are still ahead of their readings in July and June. In fact, Manufacturing sub-index is resting at the second highest level since January 2011. The same holds for All Industries index.

Modern Sectors sub-index fell from 130.2 in August to 128.4 in September (-1.38%mom) but is up 1.18% yoy and 11.3% ahead of the reading for September 2007. 3mo average through September is 3.1% ahead of the 3mo average through June 2011 and is 1.8% ahead of the 3mo average through September 2010. The sub-index is ahead of its 6mo MA of 127.3 and its 12mo MA of 126.2. Modern Sector production activity remains at the second highest level since July 2010.

Per chart above, traditional sector production sub-index has fallen to 89.8 in September from 98.5 in August. The overall trend in the sub-sector is uncertain. Massive break out from the long term decline trend in August - with index posting the strongest performance since November 2008 is now followed by a contraction of 8.8% yoy and 1.8% mom in September. However, September reading still rests comfortably above the long term trend line and ahead of 6mo MA of 89.3 and 12mo MA of 89.1. This is the second strongest reading for the sub-index since September 2010.

Having shrunk to 31.7% in August, the gap between Modern and Traditional sectors has widened once again to 38.6%.

In terms of turnover, Manufacturing industries saw a significant decline in overall turnover activity from 104.3 in August to 100.5 in September. The index is now down 0.4% yoy and 3.64% mom. The index is also down 6.8% on September 2007. However, 3mo average through September is up 3.5% on 3mo average through June 2011 and also up 1.2% on 3mo average through September 2010. The good news is that September was the third consecutive month with turnover index at or above 100, which means that September reading is ahead of 6mo MA of 99.9 and 12mo MA of 99.5. But the gap is extremely small.

Transportable goods industries turnover also declined in September 2011 from 103.8 in August to 100.1. Mom, yoy and relative to September 2007 dynamics are virtually identical to those for Manufacturing sector. Similarities persist in comparatives for 3mo averages and for 6m and 12mo MA.

Hence, overall, turnover data is less encouraging than volume data, which is expected during the overall build up of pressures in global trade flows.

Also per chart above, new orders index came in at disappointing 99.6 in September down from 102.1 in August (decline of 1.09% yoy and -2.45% mom). Compared to September 2007 the index is now off 8.93%. 3mo average through September 2011 is 2.1% ahead of the 3mo average through June 2011, but is only 0.1% ahead of the 3mo average through September 2010. Current reading is very close to 6mo MA of 99.52 and to 12mo MA of 99.18.

So on the net, I am reading the numbers coming out for September as rather positive developments, signaling some resilience in Irish manufacturing and industrial production in the face of challenges across the euro area and other core trading partners. Of course, this data requires some confirmation in months ahead before we can pop that celebratory cork...

28/10/2011: Retail Sales for September

Retail sales for September came in with a major disappointment with a drop of 0.8% in Volume and an annual decline of 2.9%. The Value of retail sales fell 0.6% mom and declined 3.3% yoy. Given catastrophic collapse of the retail sales through the crisis to-date, the latest figures are grim.

Value of retail sales (seasonally adjusted) is now below 3mo average of 87 (September reading is 86.4) and below 6mo average of 87.6. In comparison, 2010 annual average is 88.8 and 2011 average to-date is 87.7. Volume of retail sales is now running at 91.0 against 3mo average of 91.7 and 6mo average of 92.2. 2010 annual average is 93.3 against 2011 average to-date of 92.1. Things are bleak across the board.

Relative to peak (chart below), Value of retail sales is now down 25.6% and Volume is down 21.2%.

Ex-motors - core - retail sales declined 0.2% mom and fell 3.4% yoy in Volume, in Value there was a monthly decrease of 0.1% and an annual decrease of 2.4%. Relative to peak, core sales are now down 20.4% in Value and 15.0% in Volume. 3mo average for Value of core sales is now at 94.6 against September reading of 94.3 and 2010 average is at 97.6 against 2011 to-date average of 95.7. For Volume, 3mo average is 98.7 against the current reading of 98.4 and 2010 average is 102.3 against 2011 to-date average of 99.7.

Quarterly series movements are showing substantial strain on retail sales, as detailed in the charts below.

Per CSO: "The only categories that showed month-on-month increases were Electrical Goods

(+2.7%), Department Stores (+0.3%), Oher Retail Sales (+0.5%) and Non Specialised Stores (+0.2%) in the volume of retail sales. Furniture & Lighting (-4.2%), Motor Trades (-3.4%) and Food Beverages and Tobacco (-2.8%) were amongst the categories that showed month-on-month decreases in the volume of retail sales."

Other revealing features included:

• Fuel sales were up 1.7% yoy in September in Value, but down 9.6% in Volume, reflective of deep price inflation and continued contraction in demand
• Pharmaceutical Medical and Cosmetic Articles sales down 8.9% yoy in both Volume and Value
• Clothing, Footware and Textiles down 4.9% in Value and 5.3% in Volume yoy
• Furniture & Lighting down a massive 15.1% in Value and 11.7% in Volume yoy
• Overall, in terms of Value of sales only 2 categories of sales posted yoy increases in September: Non-Specialized Stores (ex Department Stores) and Fuel. In terms of Volume only electrical goods (+3.2%) posted a yoy increase.
• In August 2011 (latest data available) Ireland recorded 6th largest yoy contraction in retail sales in EU27. In July 2011 we were the 8th worst performing economy in terms of retail sales.

But fear not, allegedly, exports of Viagra etc are going to replace all the jobs being lost in the retail sector as soon as we've turned another corner.

11/10/2011: Industrial Production & Turnover: Ireland August 2011

Production for Manufacturing Industries for August 2011 surprised to the strong upside rising 11.4% higher on August 2010 (unadjusted basis) and 1.2% (seasonally adjusted) over three months from June through August, compared to 3 months prior to June. Industries volume of production rose 10.4% year on year in August, also a strong gain. Monthly increase in volume in Manufacturing (3.6%) was the strongest monthly gain recorded since 9.0% increase in September 2010, and 4.4% monthly gain in Industries was also the strongest since September 2010 monthly rise of 6.9%.

Manufacturing and Industry indices, as shown above, rose well above the shorter-term average. However, the core break out from the previously established pattern of volatility around the flat trend was in the Traditional Sectors. Specifically, Modern Sector volume of production expanded by 10.2% year on year and 0.9% monthly. These were the strongest yearly gains in the series since December 2010 and introduce a break from annual contractions posted in three months between May and July. Traditional Sectors posted a massive 16.7% jump in volume of production in monthly terms - the largest monthly gain on the record and 10.8% annual rate of growth - also the strongest growth on record.

As the result, the gap between Modern and Traditional sectors activity by volume has closed substantially in August, from 43.3 in July to 30.3 in August posting the shallowest gap since August 2010.

Equally importantly, the seasonally adjusted industrial turnover index for Manufacturing Industries

was 7.0% higher in August 2011 when compared with August 2010, and 4.9% higher mom. The annual rate of growth in August was the highest since February 2011 and the monthly rate was the highest since May 2010.

Again, as per chart above, both series now have broken well above their flat recent trend, although the breakout is consistent with volatility in the Q4 2010-Q2 2011.

Another encouraging sign is that Modern Sector employment grew from 64,700 to 66,000 between Q2 2011 and Q1 2011, although it remains below 66,300 in Q3 2010. All other sectors employment expanded from 129,600 to 129,900 Q2 2011 to Q1 2011 and All Industries employment grew from 194,300 in Q1 2011 to 195,900 in Q2 2011.

In 3 months between June 2011 and August 2011, in year-on-year terms, the following notable gains and declines in volume activity were recorded in:

• In Food products and Beverages there was 0% growth in volume - an improvement on preceding 3 months period which recorded a yoy contraction of 5.4%, with Food Products contracting 2.4% yoy (improving on 8.5% yoy contraction in 3 months from May through Jul 2011), while Beverages grew by a substantial 12.2%, building on 10.6% yoy expansion in May-July.
• Textiles and wearing apparel volumes declined 28.5% yoy
• Printing and reproduction of recorded media sub-sector volumes shrunk 14.7%, a slight improvement on 15% contraction recorded in yoy terms for May-July period.
• Chemicals and chemical products grew 27.3% (there was 23.9% rise recorded in May-July period), while Basic pharmaceutical products and preparations sub sector volumes grew 2.0% offsetting 2.9 contraction in May-July.
• Computer, electronic, optical and electrical equipment sector volumes contracted 10.9% yoy, virtually unchanged on 11.0% decline recorded in May-July, primarily driven by Computer, electronic and optical products which account for 90%+ of total value added in the sector and which declined in volumes by 10.5% yoy (worse decline than 10.1 contraction in May-July)
• Machinery and equipment not elsewhere classified expanded by 19.1%
• Transport equipment grew by 14.8%
• Other manufacturing contracted by 8.8%
• Electricity, gas, steam and air conditioning supply volumes were up 1.5% yoy
• Capital goods sector volumes posted another contraction of 1.0% yoy, improving on 1.3 decline recorded in may-July
• Intermediate goods production volumes fell 13.2%, also better than 14.1% decline in May-July
• Consumer goods production grew 3.0%, reversing 1.8% decline in May-July, of which durable goods production volumes were up 12.2% although these account for 1/32nd of the total value added in the category, non-durable goods grew by 2.9%.
• 
  

28/09/2011: Retail Sales for August - a nasty surprise.

After showing the signs of some stabilization in quarterly data (Q2 2011 index of retail sales by value was up to 88.3 from 88.0 in Q1 2011 and volume of sales index went up from 91.8 in Q1 to 92.9 in Q2), the latest data has thrown a nasty surprise to the downside in retail sales activity in August.

Here are the core highlights:

• Value of retail sales has fallen 0.8% mom in August to 87.1, down from 87.8 in July. In two months since the end of Q2 2011, the value of retail sales (seasonally adjusted) has declined from 88.7 to 87.1, more than erasing the gains recorded in May and June this year. Annual rate of decline in August was 3.1%, compared to the annual rate of decline of -1% in July.
• August value index posted the sharpest monthly contraction in 4 months, ditto for annual rate of decline. Comparable monthly peak took place in August 2007 and we are now 25.04% down on that in terms of value index. 3mo-MA is now at 87.9, down from the 6mo-MA of 88.0. 2010 annual average for the index was 88.8 and 2011 average to-date 88.0, which means that 3mo- and 6mo- and year-to-date performance through august is worse than 2010 annual average.
• Volume index (seasonally adjusted) also fell, declining from 92.4 in July to 92 in August, the rate of decline of 0.4% mom and 3.6% yoy. This is sharpest rate of contraction (yoy terms) since April 2011.
• 3m0-MA is now at 92.7 against 6mo MA of 92.6 and these are both below 93.3 annual average for 2010. Annual average for 2011 to-date is 92.3.

In summary, folks - the battered sector is taking even more water!

Relative to peak things are even bleaker:

• Value index is now at 73.0% relative to peak down from 73.6% in July. August reading is the lowest since January 2010.
  
• Volume index is at 79.1% of the peak and this is down from 79.45% in July. August reading is the lowest since April 2011.
  

Ex-motors sales:

• Value of retail sales ex-motors in August stood at 94.4, down from 95.2 in July, a decline of 0.9% mom reversing 0.4% mom increase in July, the sales are now down 2.8% yoy against 1.5% decline yoy in July. 3mo-MA at 94.8 and 6mo-MA at 95.5, as well as 2011 average to-date of 95.9 are all below 2010 annual average of 97.6.
  
• Volume of retail sales ex-motors is down to 98.7 in August, 0.5% below the 99.2 reading in July. 3mo-MA of 99.1, 6mo-MA at 99.5 and 2011 average to-date at 100.0 are all below 2010 average of 102.3.

Relative to peak:

• Value of core sales is now at 79.6% of the historical peak having risen to 80.3% of the peak back in July. August reading marks the lowest point in the series relative to peak.
• Volume of core sales is at 84.4 relative to historical peak, also the lowest point in the series.
  

According to CSO:

• Electrical Goods (+2.1%) was the only category that showed year-on-year increases in the volume of retail sales this month. Sales fell in value 5.0% yoy as deflation continued in the sub-sector.
  
• Books, Newspapers and Stationery (-13.3% both in volume and in value), Pharmaceuticals Medical & Cosmetic Articles (-10.4% in volume and -9.8% in value) and Furniture & Lighting (-9.5% in volume and- 13.1% in value) were amongst the categories that showed year-on-year decreases this month.
• Fuel sales have declined 8.2% yoy in volume, but rose 3.1% in value as inflation bit harder into the pockets of consumers cutting back on fuel purchases.
• Hardware, Pains & Glass sales are down -6.3% in volume and -6.8% in value
• Motor trades are down 5.7% yoy in August in value and 2.6% in volume
• Bars sales are down 7.1% in volume and 7.3% in value.

Irish retail sales decline in volume terms was the seventh largest in EU27. Euro area as a whole experienced a decline of 0.2% in the volume of retail sales. More on this in upcoming separate post.

24/09/2011: Projected trends in economic growth for 2011

In the previous post I covered the current results for Q2 2011 QNA for Ireland. As promised, here, I will focus on forward-looking signals emerging from H1 2011 data.

Please note, though I do use the term 'forecast' below, the results shown here are really more projections than formal forecasts. The difference is very important. I use data through Q2 2011 to estimate what the economy performance is likely to be, assuming no change on the trends established in H1 2011. Of course, this is subject to significant risks (identified below).


Based on Q2 2011 (preliminary - and I stress this) data, chart below shows my forecast for 2011 growth:
Using simple forward forecast based on Q1 20003 - Q2 2011 data, we can now expect:

• Agriculture, Forestry and Fishing sector real output to grow by ca 5.5-5.6% this year, well in excess of 2010 growth of 0.7%, lifting sector output closer to €3.2bn in 2011 or 3.2% ahead of 2007 (the peak year for GDP and GNP).
  
• Industry, including construction, is expected to expand by 5.0-5.1% this year, slightly below 5.2% growth rate achieved in 2009. This will put sector output in real terms 2,9% ahead of the pre-crisis peak of 2007.
• However, industry performance will come against continued double digit contraction in Building & Construction sub-sector, which is expected to shrink 17-18.5% in 2011, compounding an astonishing 30.1% decline in 2010. Bu the end of this year, the sub-sector output can be 61.3% below the level of pre-crisis peak year of 2007. Note, the peak for the sub-sector was back in 2004 and if things continue on trend, 2011 output will be a whooping 74% below that.
• Distribution, transport & communications sector is likely to post another decline this year - shrinking by some 1.1-1.2% against a decline of 2% in 2010. Relative to economy's pre-crisis peak the sector is likely to be down 16.3% in 2011.
  
• Public administration & defence sector will contract 2.4-2.5% in 2011, based on data through Q2 2011, compounding a 2.7% decline in 2010. The sector is likely to fall compounded 4.9% on 2007 and 9% on peak sector contribution in 2008.
• Other services (including rents) - the sector accounting for 51% of our overall economic acitivity (GNP) is likely to post another contraction of -0.6-0.8% this year, compounding a 2.3% fall in 2010 and down 6.6% on 2007 peak.

Hence, GDP is expected to expand by 1.5-1.6% this year on the constant factor basis if we are to use the data from H1 2011, following 0.1% contraction in 2010. This will put our GDP somewhere around 5.6-5.7% below 2007 peak levels.

Taxes, net of subsidies are continuing to fall with 3.5-3.7% decline in 2010 now expected to be followed by 1.8% contraction in 2011. The end of 2011 taxes net of subsidies will likely come in at 32-33% below 2007 levels. This, of course, is driven by the twin forces of rising social welfare costs and continued presence of other substantial transfers, plus a reduced tax take.

With this, overall GDP (in constant market prices) can be expected to rise ca 1.1-1.3% in 2011, based on preliminary data through Q2 2011 (subject to revisions and also reflective of much more robust global economic conditions pre-July 2011 amplification of the crises). This will follow on a 0.4% decrease in 2010, leaving the gross real income 9% below 2007 levels.

Net factor income outflows to the rest of the world are likely to continue rising in 2011, growing 2.4-2.6% in 2011 (assuming amplified crisis conditions do not trigger signifcant withdrawals of retained profits), leaving factor outflows up 4.3% on 2007 levels.

With that, we can expect GNP to rise 0.8-1.0% in 2011, following on 0.3% growth in 2010 and national income will be 11.2% below 2007 peak levels.

Sectoral decomposition of national income by source, so far, stands at:

• Agriculture, forestry and fishing - the flagship sector by subsidies received and attention paid to it (remember, RTE and Irish Times are so keen covering ploughing championships) - contribution to GNP will be a whooping 2.4% in 2011 a 'massive' jump on 2.3% in 2008 and 2009, but still below 2.8% average annual contribution in 2003-2005.
• Industry (including Building & Construction) will be contributing 34.9% on GNP, up on 33.5% in 2010. If this materialises, 2011 will be the best year for Industry since 2003, which, incidentally, shows just how significant the growth in MNCs-led exports-oriented manufacturing was over recent years. As Building & Construction subsector contribution shrank from 9.9% at the peak in 2004 to 2.6% in 2011, manufacturing picked up the slack, pushing Industry overall contribution from 34.1% in 2004 to 34.9% - a swing of 8.1 percentage points.
• Distribution, transport & communications sector contribution is currently running at 15.7%, behind 16.0% in 2010, and at the lowest levels since 2005.
• Public administration and defence contribution to GNP is running at 4.2%, down from 4.4% in 2010, but still ahead of 3.9% in 2006 and 2007 and ahead of 4.0% annual average for 2003-2005. In 2003-2007 sector contribution average was also 4.0%, so our austerity so far is, in relative terms, seeing an increase in spending on public administration and defence as the share of the total economic pie. Now, these two functions are not front-line vital services, last time I checked, so you would expect a rational policy would be to shrink these sub-sectors at least at the speed of reduction in GNP. So far, this is not happening. Another alternative would be to reduce them at least at the rate of decline in taxes importance in the economy. This too is not happening, as shown below.
  
• Other services are likely to contract in their importance in the economy in 2011 (to ca 51.1% of GNP) following a contraction from 53.5% in 2009 to 52.1% in 2010. Large share of these services are exportables, which highlights the fact that not all of our exporting activities are booming.
• Taxes net of subsidies are likely to come in at 11.3% of GNP in 2011, down from 11.6% in 2010 and reaching the lowest level on the record since 2003. 2003-2007 average here is 14.5%, 2008-2010 average is 12.4%, so current state of taxes net of subsidies is worse than any recorded sub-period.
  

Again, to stress, one metric for sustainability of public spending would be to have public administration and defence spending contracting faster than the rate of contraction in taxes. And again, this is simply not happening. Since 2007 taxes have fallen from 15.0% of domestic economy to 11.3%. In the same period, public administration & defence contributions have increased from 3.9% to 4.2%.

Again, to stress, these 'forecasts' or rather 'projections' are based solely on preliminary figures for H1 2011. They are not strictly speaking forecasts, but rather annualized reflections of performance between January 2011 and June 2011. The risks to these are to the downside:

• Decreasing rate of growth in the US and the euro area materialising since May-June 2011 is not reflected in the projections above
• Signs of significant slowdown in broad leading economic indicators (PMIs, investment etc) are not reflected in the projections above, and
• Preliminary data can see significant revisions in time - in Q1 2011, preliminary estimate for GNP decline was estimated at 4.3% and it was revised to 3.0% decline in the current release, so the swings can be quite significant.
  

10/08/2011: Industrial Production and Turnover: June 2011

Industrial production for June confirms the trend spotted here few months ago: Irish economic recovery (or rather the nascent signs of it) is now running out of fuel.

Industrial production has been a bright spot on our economy's horizon, primarily thanks to the MNCs. In annual terms:

• 2010 index of production for Manufacturing Industries rose to 110.1 up on 2009 level of 101.7 and regained the 109 mark reached in 2007.
  
• All Industries index too reached to 108.7 - above 108.4 in 2007.
  
• Modern Sectors - MNCs-dominated area of industrial production - were the core drivers, starting with the reading of 111.2 in 2007, falling only slightly to 109.8 in 2008, then climbing to 112.6 in 2009 and rocketing off to 124.7 in 2010.
  
• Meanwhile Traditional Sectors were just beginning to lift their head in 2010: after posting the reading of 104.7 in 2007, the sector fell to 100.4 in 2008, followed by a collapse to 86.2 in 2009 and a slight rebound to 87.8 in 2010.

All of these positive dynamics are now changing and not on a monthly volatility - along a new trend.

First the latest data on Production indices:

• Manufacturing sectors production have risen to 111.4 in June, relative to May 2011, however, the index remains flat since June 2010. The 6mo average and the 12mo average for the series are both at 111.2.
• All Industries index for production is now at 109.9, slightly up on May 109.3, but again, the series are not going anywhere in the medium term. The index is basically flat since June 2010 and 6mo average is at 109.5, while 12 months average is at 109.6.
• Modern sectors index for production volumes is now at 125.6, up from 123.8 in May. Again, as above, this is now flat on July 2010 with the 6mo average of 124.9 and 12 months average of 125.6
• Traditional sectors posted a monthly contraction in June to 89.8 from 91.8 in May. Again, the index is broadly flat since August 2010 and 6mo average for the series is at 89.3, although 12 months average is at 88.9

Chart below illustrates:

One continued trend has the widening gap between the Modern sectors and Traditional sectors. The gap between two series increased from 32 points to 35.8 points in May to June 2011. However, as the chart below illustrates, this gap is now trending along the flat since September 2010.
Turnover data paints a slightly different picture. First, consider annual indices:

• Manufacturing Industries turnover peaked in 2007 at 106.9 before falling to 93 in 2009. 2010 saw the index regaining some of the lost ground at 97.5
• Transportable Goods Industries turnover peaked at 107.3 in 2007 before falling to the trough of 92.8 in 2009 and then rising to 97 in 2010.

Now, on to monthly readings:

• Manufacturing Industries turnover index stood at 98.6 in June 2011, down from 99.5 in May. The index average over the last 6 months stands at 98.7 and for the last 12 months the index average is 99.5. In other words, once again, we are seeing a relative flattening of the trend for already shallow gains since the trough.
• Transportable Goods Industries turnover index fell from 99.1 in May to 98.3 in June and confirms the relatively flat trend over the last 12 months.
• In line with the above, New Orders Index has fallen from 99.8 in May to 99.3 in June. Again, as the chart below shows, the series is running along the flat trend since mid 2010
  

Overall, while monthly changes on volumes were somewhat in-line with previous growth trends (except for Traditional sectors), the volumes growth is now appearing to have established a flat trend since mid 2010. Exactly the same applies to Turnover indices (which are also showing monthly deterioration) and to the New Orders index.

10/06/2011: Industrial turnover and production - April 2011

Industrial Production and Turnover data was released today for April, indicating the overall activity in the manufacturing sector and the broadly defined sources of this activity.

In line with this, I went back and linked - re-based - 2006 and 2007 CSO data to current base to show some comparatives to pre-crisis dynamics.

Here are the highlights:

• Manufacturing activity was up 4.09% on annual basis, compared to April 2010. Monthly increase was 2.24%. However, Manufacturing activity was down 1.44% on 3 months ago and 4.16% on April 2007 (pre-crisis). The seasonally adjusted volume of industrial production for Manufacturing Industries for the 3mo period to April 2011 was 1.8% lower than in the preceding 3mo period
• All industries activity was up 1.32% mom and 2.67% yoy, but down 2.095% on 3 months ago and down 5.33% on April 2007.
• Modern Sectors posted a volume increase of 2.52% yoy and 1.41% increase mom. The activity in Modern Sectors is up 4.79% on April 2007, but is down 2.4% on 3mo ago.
• Traditional Sectors activity was up 1.39% yoy and 1.15% mom, but down 0.57% on 3mo ago and a whooping 18.05% on April 2007.
• It is interesting to note that Modern Sectors are positively correlated with Manufacturing output to the tune of 0.772 for the full sample (January 2006-present), but this correlation grew to 0.863 for the sub-sample covering the crisis (since January 2008) and continues to grow today - up to 0.926 for the sub-sample since January 2010.
  
• In terms of Modern Sectors influence on All Industries volumes, the same relationship holds, with full sample correlation of 0.713 rising to 0.812 for the crisis period and to 0.887 for the period since January 2010.
• The predominant role of Modern Sectors in driving Irish Industrial production is contrasted by a very modest role played by Traditional Sectors, where correlation with All Industries has declined from 0.416 in the full sample since January 2006, to 0.290 in the sub-sample covering the crisis since January 2008, to 0.142 for the sub-sample since January 2010.
  

Chart to illustrate:
Of course, the driving factors discussed above imply that:

• The collapse of construction and real estate investment exposed the extreme degree of indigenous industries dependence on these areas of economic activity;
• MNCs-dominated modern sectors, free of constraints of domestic demand, have been experiencing strong recovery. Manufacturing has regained pre-crisis peak of 109 (attained in 2007) back last year (reaching index reading of 110.1 for the year), which also pushed All Industries index a notch above pre-crisis peak. Modern Sectors have shot to new historic highs in 2010, reaching 124.7 index reading, compared to pre-crisis peak of 111.2 attained in 2007. It is worth noting that Modern Sectors have recovered from the recession back in 2009, having posted volume of production index reading of 112.7 - above the pre-crisis peak.
• These trends continued in April 2011, as CSO notes, since "the most significant changes [in Volume of Production Indices] were in the following sectors: Basic Pharmaceutical products and Preparations (+11.3%) and Beverages (9.9%)... The “Modern” Sector, comprising a number of high-technology and chemical sectors, showed an annual increase in production for April 2011 of 2.6% and a increase of 1.4% was recorded in the “Traditional” Sector.

Next, consider turnover indices:

• Turnover in Manufacturing sector in April registered index activity at 95.9, which is 3.01% above March activity and 3.45% above April 2010 activity. However, turnover is 4.29% below that recorded 3 mo ago and 14.40% below April 2007. The turnover in April was also lower than the turnover in any of the months from May 2010 through February 2011
  
• Turnover in Transportable Goods Industries posted index reading of 95.4, which was up 2.69% mom and 3.02% above April 2010 reading. The index was down 4.6% on 3 mo prior to April 2011 and 15.22% below April 2007 reading.
• This suggest that output sales conditions have improved mom (monthly changes in turnover exceed change in volumes), but are still down yoy.

Chart to illustrate:
Lastly, the above chart also shows new orders activity which has risen from 90.7 in March to 95.9 in April for all sectors. However, new orders activity remains slowest for any month since the end of April 2010 through February 2011. New orders index is therefore up 5.73% mom (good news) and 3.79% yoy (also good news), but it is still down 4.39% from 3 mo ago and is down 15.52% on April 2007.

04/06/2011: The 'Confidence' trick?

Updated below: In the update below I address one particular point raised by some readers of this blog relating to PMIs and my analysis of these.


As promised in the earlier post, for the fans of the 'If only we were confident in Ireland' school of economic thinking... The school of thought, also known as the 'Green Jerseys', maintains that if confidence is high, then growth and employment will follow, so to get Ireland out of the crisis, positive thinking is needed.

Let's take a look at the data.

Keep in mind that we only have data for the period of May 2000-present and only for Services sector. Of course, Services is the largest sector in the Irish economy and it is more labour intensive, so the conclusions drawn from these observations should be expected to remain broadly valid for Manufacturing as well.

If the 'Confidence' thesis holds, we should expect some strong relationship between Confidence reading in PMIs and employment sub-index of the very same PMIs as well as PMIs main index which captures activity. This relationship might be subject to lags, of course, as Confidence sub-index is self-assessment of the future some 12-mo in advance, while Employment sub-index reflects current staffing levels, and the core PMI reflects current activity. Now, keep in mind that the 12-mo in advance expectations is for a continuum, not spot, in other words, growing confidence means expectations for improving business over the 12 months horizon.

First, consider whether there is a coincident relationship between Confidence and PMIs and Employment sub-indices:
Yes, there is a strong positive relationship between expansion signaling readings of confidence today the future and current levels of economic activity as measured by employment and PMIs. In other words, things tend to be optimistic (pessimistic) when PMIs are booming (shrinking) and employment is rising (falling).

Sounds like the 'Confidence' theory working? Not really - what's happening here is that when things are great, we expect them to stay great, on average. Alternatively, when things are bad, we expect them to stay bad for some time ahead. Which, of course is consistent with the fact that data we have covers 2000-present - two periods of pretty much persistent boom and then bust.

So let's take a look at change from month to month.

• Does change in confidence imply change in current PMIs and employment? (If the 'Confidence' theory is right - it should, as future expected changes in activity should have a positive growth effect on current activity)
• Does change in confidence today imply a change in future PMIs and employment? (If the theory is correct, then it should, with some lag kick in in terms of positive real outcomes)

Sorry, but it appears that a change to higher Confidence in the future in any given month relative to previous month has virtually no relation to either present or future Employment changes or future PMIs. It has a tiny positive connection to present PMIs, however, but barely enough to be called 'significant' from statistical point of view. In other words, we might get all giddy chirpy about the great future we have, and yet it will be unlikely (highly unlikely) - according to the PMIs data - to translate into significant gains in either services activities or employment, neither today, nor in the near future (I tested longer lags up to 12mo and the results do not change by much).

This of course does not mean that positive sentiment is not a good thing for the economy. If positive sentiment is backed by something more tangible - reforms, improved exports, growth in consumer or investor confidence - some real productive fundamentals, then of course it will matter. But that is not the 'Confidence' theory. The 'Confidence' theory says 'negativity hurts economy'. No, folks - it doesn't. You can't talk yourself into a recession. And the 'Confidence' theory claims that if we get 'positive' about the future, things will improve (presumably improve significantly, otherwise, what's the point). This is not what the data is showing.

So what's going on, then? We know that Confidence is associated with performance, but we also now know that at least in Ireland, over the period looked at, changes in confidence are not associated with changes in performance either today or in the future.

Of course, Ireland is a small open economy. Which means it is volatile and is subject to constantly shifting external 'winds' of change. May it be the case that 'Confidence' theory doesn't work in Ireland because our real economy is subject to external forces and shocks? Ok, let's test this proposition. Let's control for contemporaneous backlog of orders, leaving only that component of Confidence that is not influenced by these backlogs. In other words, let's consider that part of our self-assessed optimism (pessimism) that is unrelated to the actual observed increases in new orders (decline in these orders). Furthermore, let's slightly smooth the series tor educe volatility by using a 2mo moving average on all variables.
An interesting result above. The link between confidence and contemporaneous PMI and Employment is now virtually gone (compare the results with Chart 1 above), which exactly supports my conclusions made following Chart 1. What matters to the turning of the economy, folks, is the real economic activity - rising backlogs, new orders, new export orders. What doesn't matter much at all, it appears, is 'Confidence'. So, please, go on, feel great - it might improve your smile, your utility, your view on life - all of which are great results. But don't hold much hope that it will improve the economy and reduce unemployment.

In the end, to achieve these two objectives, we need new businesses to be created, new markets to be accessed, new products and services to be developed and marketed, and so on, and new reforms implemented. Unfortunately, the 'Confidence' theory can lead us into complacency of avoiding making hard choice to have such reforms, to support our entrepreneurs, our companies and workers.

Ignoring the rain might make getting wet tolerable or even fun, but it won't make you any less soaked.

Update: Some websites contain references to these series of posts on PMIs. In particular, there is an occasional refrain to my view that (1) I would prefer seeing strong (above 60) readings in some sub-indices, and (2) my insistence that an 'improvement' in the sub-index reading from a number below 50 to another, higher number below 50 is not an improvement. Let me explain my views on these 2 points.

1. Readings above 60 are rare, that is true. But PMIs refer to comparative/relative performance metrics. Now, real recovery is not, I repeat - not - associated with growth returning to a long-term trend, but growth overshooting long-term trend as economy goes from negative growth (contraction) to expansion. Thus, for example in the Services series, near-recession of 2001 is returned to growth by PMIs reaching for 60.8 by April 2002. In Manufacturing series contraction in October 2001 to 46.1 is returned to growth with June 2002 reading of 54.5 (so -3.1 from 50 to +4.5 - a ratio of 1.45), contraction of July 2003 (45.8) is returned to growth with a peak of 55.2 in June 2004 (-4.2 to +5.2 - a ratio of 1.24). Now, bottom of the latest contraction was at 32.6 which should be consistent - if we take the above two episodes averages (ratio of 1.35) - with a rise to above 67. We've gone up to 62 in March 2010, but we have not seen this translate into overall economic growth. Hence, my preference would be to see more episodes of 60+ readings in PMIs. Either way, all of the episodes we have on the record so far are episodes relating to either 'near recessions' or temporary declines in the series not associated with a recession at all. Except for the current crisis, that is. O course, this 60 is not a 'hard' target. Read carefully what I said (here): "Either way, of course, I'd rather see PMIs at above 60 reading, than heading for a downward territory". This is a statement of 'truism' - as in: I'd rather see things improve than get worse. Sadly, some anonymous commentators on some of the forums out there are not getting even this simple concept...
2. When the series read below 50, the series show contraction. Thus, for example, a reading of 44 in one month followed by a reading of 46 in the next month does not mean that economy has improved from month to month. It means that the economy has deteriorated at a slower rate. If you are familiar with compounded effects of recessions (expansions), you would know that having a loss of 10% in month 1 followed by a 5% decline in the other month implies a cumulative decline of 14.5%. An improvement would be if following a 10% drop in on month, economy grows by, say, even 1% in the next month, thereby reducing the original decline to a cumulative decline of 9.1%. Let me quote Brad DeLong on this: "Getting worse more slowly is not the same as getting better".

04/06/11: Services PMIs - detailed breakdown

The last post on latest PMIs - this time detailed breakdown of Services data. In previous post I have covered:

• Manufacturing PMIs
• Manufacturing and Services PMIs - showing relationships between Employment and PMIs (the 'Jobless Recovery' slowing down story, as well as between Exports New Orders and Employment, showing that probability of having a jobless 'growth' through exports is over 40% for both Services and Manufacturing)

So no on to detailed Services PMIs analysis.

Headline numbers:

• Overall Business Activity has improved marginally to 50.5 in May from 50.2 in April. Both readings fall within the area above 50 which signals extremely weak expansion. Since 2000, Services PMI standard deviation was 7.966, and since 2008 - the beginning of the crisis it stands at 6.839. The latest move puts Services PMI at a level below both the 12mo average of 51.9 and the 3mo average of 50.6. Previous 3mo average was 52.1, while 2010 annual average was 51.
• New Business activity index stands at 48.2 in May, down significantly on 50.6 reading in April and crossing into a full contraction territory, breaking three consecutive months of signaling extremely modest gains. 12mo average stands at 50.3 and 3mo average stands at 50.2, but what is even more disappointing is that the latest monthly reading falls below the already poor index reading for the 3 months of December 2010-February 2011 which were adversely impacted by the inclement weather.

• There's been a clear (although volatile) side-ways flat trend around zero growth in Services New Business activity for some time now - from about the beginning (Feb-Mar) 2010. And it is not changing so far.
• Next, consider prices - the signal of profit margins. These were discussed in an earlier post and I produced a new sub-index using NCB PMIs data for Services and Manufacturing profit margins conditions (see the third chart in here).
  
• Output prices have posted deeper deflation in May, falling to 43.9 from April's already deflationary 45.4. Overall, this marks 34th consecutive month of deflation in output prices.
• Meanwhile, input price inflation has moderated slightly from 55.7 in April to 54.7 in May. This marks 6th consecutive month of continued inflation in terms of inputs costs.
• It is worth noting that the traditional metrics of 'competitiveness', based on unit labour costs fail to account for the non-labour inputs costs, thus missing the full picture of declining competitiveness in the Irish economy. My index (referenced above and shown here) clearly indicates that in terms of inputs costs relative to output prices competitiveness Irish economy has been trading at zero net improvement for both sub-sectors over the entire period since September 2002.

• Employment sub-index in Services sector has posted significant deterioration in May, falling to 48.1 from 51.1 in April. April above 50 reading was the first one since February 2008 and this glimmer of hope was now firmly erased by the latest data.
• For the fans of the 'If only we were confident in Ireland' school of economic thinking, Service PMIs show the fallacy of groundless hopes. Irish businesses in the Services Sector were showing high levels of confidence (in excess of 55 and most in the 60s) since August 2009. Every month after month. They still do - May reading of 62.3 was extremely robust, although down on 66.6 in April. Oh, yes, folks - 12mo average for Confidence is now at a blistering 64.8, matched by 3mo average through May and virtually identical to 3mo average for December 2010-February 2011 64.7. 2010 March-May average was 66.7. So does Confidence translate into growth? Or does Confidence translate in jobs? I will examine this in a separate blog post below.
• Lastly - New Export Business slipped marginally from 54.6 in April to 54.4 in May. Moderate growth continues in the exports territory - the only solidly good news over the last 5 months on Services side.