Economics 10/08/2009: Industrial production blues and fun-NAMA

Brian Lucey has an open petition on NAMA on his site (here):
http://brianmlucey.googlepages.com/namapetitionandoireachtasemails
which is, in my view, spot on in terms of what each member of Oireachtas should read before the NAMA debate takes place.


Before we begin with CSO's data on industrial production - few NAMA posters are posted below, so do make sure you get to the end of this post...


CSO data on industrial production was published earlier today. Trumpets are blowing that things are turning around for Ireland Inc. But hold your horses...

On an annual basis production for Manufacturing Industries for June 2009 was 4.3% higher than in June 2008. So turnaround is here, then? Well, no... The most significant changes were in:

• Basic pharmaceutical products and preparations (+35.1%),
  
• Other manufacturing (+25.9%) and
  
• Computer, electronic and optical products (-17.7%).

What does the above mean? Pharma guys are chugging along in transfer pricing / tax optimization, but computers and electronics - hammered by exits and layoffs and the collapse in private investment worldwide - can't even master a tax optimization scheme. I mean, Table 3 in CSO release clearly shows this sector having suffered the greatest layoffs of all other sectors in proportional terms, and of all other Modern sectors in absolute and proportional terms.

The seasonally adjusted volume of industrial production for Manufacturing Industries for the three month period April to June 2009 was 2.0% lower than in the preceding three month period. This is volatile stuff, so 3-mo aggregates are a bit more telling.

The “Modern” Sector, comprising a number of high-technology and chemical sectors, showed an annual increase in production for June 2009 of 16.0% - the same transfer pricing argument holds. But there was a decrease of 16.6% in the “Traditional” Sector.

The seasonally adjusted industrial turnover index for Manufacturing Industries was 1.9% lower in the three month period April to June 2009 when compared with the preceding three month period. Now, outside the current crisis, turnover is actually less volatile than production volumes, and yet now it tracks almost 1:1 the more volatile series. What's going on? I am not sure, but one potential explanation is that we have gone into a severe enough jobs/production capacity cutting mode earlier this year to allow for some stabilization during May-August period. Of course, this means September-October turnover will make or break our stabilization. If turnover falls, new layoffs will be coming. If it rises, well, if it rises by a hell of a lot, then hiring might commence.

On an annual basis turnover was 0.6% lower when compared with June 2008.

Now, few interesting charts:
Taking a closer look above, compare the changes over the last four months reported relative to sector activity in 2005 (the 100 line):

• In March 2009, 8 sectors performed above their 2005 levels in volumes. In June, the number was 6.
• But in April 2009, this number was 5, while in May it was 3...

In effect, the whole manufacturing sector is sick and the disease is not new to this crisis. Read through this chart above - it is really, really telling. The same chart with monthly changes May-June (preliminary results, of course for June) - 11 sectors show no improvement, 9 show improvement.

Now step back for a bit of a broader view:
Self-explanatory, but few notes worth making:

• Capital goods are slightly up +4.66% mom in June, but that is after being slightly down -2.83% in May, so change on March 3.75%, but on April only 1.7%. Not exactly a robust start of a new cycle here, but not a disaster.
• Intermediate goods down - MNCs might be scaling back for summer.
• Consumer goods up, but no durables - weather effect?

Unfortunately, CSO can't get their act together on surveying new orders for all sectors, so we have a snapshot of what's happening in the very limited number of areas. But what the chart below really shows us is our dependence on MNCs - yeah, those American (and other countries') companies who are still trading, if only because of our tax arbitrage opportunity...

Credit for the following due to:
http://img7.imageshack.us/img7/5391/namahaughey.jpg
http://i38.photobucket.com/albums/e146/vgupload/sofew02.png