1/10/2013: Irish Manufacturing PMI: September 2013

Some good readings from Irish Manufacturing PMI (Investec-sponsored Markit data) for September:

• Headline PMI is at 52.7 up on 52.0 in August and the highest reading since 53.9 in July 2012.
• Critically, this appears to be the first statistically significant reading above 50.0 since November 2012.
• I use 'appears' above since we have no formal analysis from Markit on this (Investec don't do analysis). The distribution is Laplace. August reading was close to being statistically significant.
• In terms of trend, Q1 2013 average reading was 50.13, Q2 2013 at 49.33, Q3 now reads 51.9. 
• 12mo MA is at 50.8.
• 3mo MA through September 2013 is at 51.9, which is below the same period 2012 (52.2), but ahead of 2011 (49.2) and slightly ahead of 2010 (50.4).

Now, it appears we have broken the downward trend at last. Index volatility (36mo rolling) has fallen slightly to around 2.3 in terms of 3mo average through September, which is close to historical average of 2.4 and is well below the crisis-period average of 3.4. Positive skew on change is at 3mo average of +0.75 (for deviations from 50.0) and this contrasts with a negative -0.34 skew for historical data and -0.25 skew for crisis period data. So let's call it a trend reversal for the short term:

Sadly, nothing else to report, since Investec/Markit continue to push out data-less releases. Wish I could tell you about employment, exports orders, total orders... but there is not a single number in the press release, only comments.

10/9/2013: PMI and the real economy: Goldman Sachs notices disconnect

So ZeroHedge picks on Goldman Sachs taking the Euro area PMIs apart along the same lines as my recent criticism of the headline index: http://www.zerohedge.com/news/2013-09-09/goldman-pours-cold-water-exuberance-european-pmis.

Here is my take:

1. Irish Services PMI detached from reality: http://trueeconomics.blogspot.ie/2013/09/592013-cautionary-note-on-irish.html
2. Irish Construction Sector PMI tracking itself, rather than actual construction activity: http://trueeconomics.blogspot.ie/2013/09/292013-sunday-times-august-25.html
3. Both Manufacturing and Services PMI failing to explain/track economic growth: http://trueeconomics.blogspot.ie/2013/07/772013-irish-manufacturing-services-pmi.html
4. The point at which Markit stopped reporting actual sub-indices series or even current month values: http://trueeconomics.blogspot.ie/2013/07/772013-services-pmi-for-ireland-june.html

And so on... 

2/9/2013: Irish Manufacturing PMI: August 2013

Markit/Investec Irish Manufacturing PMI out for August today. As usual - no data on sub-indices, no statistical analysis released.

Headline reading improved to 52.0 in August, up on 51.0 in July, marking the highest reading since November 2012 when it stood at 52.4 and the third highest reading in 12 months. Release from Markit is here. My analysis as follows:

• 1.0 points gain on July is a decent number. We are now into third consecutive month of nominal seasonally-adjusted readings above 50.0. All of these are good signs.
• Another good sign: 12mo MA is now at 50.8 and 3mo MA is at 51.1. This implies that 3mo MA is ahead significantly over 48.8 reading for 3mo through May 2013. However, on a negative side, 3mo MA through August 2013 is down on 52.6 recorded for the 3mo through August 2012, although it is ahead of 3mo MA for the same period in 2011, and down on same period average for 2010.
• Cautionary signs: current reading is still below statistically significant levels (ca 52.2), although we are in a Laplace distribution (as I noted earlier, based on higher moments). Last time the index was reading statistically above 50.0 was in November 2012.
• Another note of caution: Q3 2013 to-date averages at 51.5 - nice number, but recall that in a contractionary Q1 2013, PMIs averaged above 50.1. Nonetheless, good news - the index for Q3 2013 to-date is above both Q1 and Q2 readings. 

Trends illustrated:

Note strong departure from 6mo MA in the chart above, which is encouraging; and in the chart below, note that we have finally reached above the crisis-period average for the index.

Another good news bit is that we have moved closer to confirming the index breakout from the downward trend that run from July 2012 through June 2013. One-two months more of this performance and we can be moving onto a new trend:

Summary: overall, decent performance by manufacturing PMI in August. 

I cannot confirm any of the statements made by Markit/Investec, and note: I have not seen Investec usual longer release so far. However, per Markit, all three main sub-sectors have posted increases in output in August, and "new orders rose for the second successive month, and at a solid pace that was the strongest since July 2012". No idea where actual indices readings are at. "Meanwhile, employment continued to rise, extending the current sequence of job creation to three months. However, the pace of increase slowed over the month." Again, no idea as per actual readings.

2/8/2013: Irish Manufacturing PMI: July 2013

Manufacturing PMI for Ireland was out yesterday. And as usual, it was worth waiting and giving the Irish media time to get through their circus of 'analysis'. The excitement of 'growth' predictions aside, here's the raw truth about the numbers (please, keep in mind that shambolic data coverage by Markit press-release is no longer conducive to any serious analysis of the underlying components of the PMIs). Note: PMI for Ireland are released by Investec and Markit.

All we have is the headline number. On the surface, headline Manufacturing PMI moved from 50.3 in June to 51.0 in July. Both numbers are above 50.0 and thus suggest expansion. This marks two consecutive months of growth.

However, there are some serious problems with the above. Read on:
-- At 51.0, July PMI is barely above 12 mo average of 50.7.
-- 3mo average through July is at 50.3, ahead of 49.4 3mo average through April 2013 - which is good news.
-- In July 2012, PMI was at 53.9 which was statistically significantly above 50.0 (in other words, statistically we did have growth in July 2012, which turned out to be pretty disastrous year for manufacturing and industry as we know). And in July 2013 at 51.0 there is no statistically significant difference in current PMI reading from 50.0, which means - statistically-speaking - we do not have growth.
-- Current 3mo MA at 50.3 is not different from 50.0 statistically
-- Current 3mo MA is below that in 2012 (52.7), ahead of that in 2011 (49.9) and below that for 2010 (52.4) - which is not exactly confidence-inspiring, right?
-- M/m (recall, these are seasonally-adjusted numbers) there was a rise in PMI of 0.7 (slightly better than m/m rise of 0.6 in June 2013). Alas, this monthly rise was also statistically indifferent from zero.

Here are two charts that illustrate the above points.

In short - good news is that PMI is reading above 50 and strengthened in July compared to June. Bad news is that statistically-speaking, neither the reading levels (in both June and July), nor increases m/m (in both June or July) are significant. Which means that we simply cannot will away the caution in reading the PMI numbers this time around.

7/72013: Irish Manufacturing & Services PMI: June 2013

In the previous post I covered in detail the dynamics of the Services PMI (here) and few posts back, I covered Manufacturing PMIs (here). Now, lets take a look at both together.

Chart above shows the deviations of both PMIs from 50.0, with pre-crisis and post-crisis averages.
The relative weakness in Manufacturing performance, from the end of Q2 2011 through current is pretty much apparent. Both, manufacturing and services PMIs signaled much stronger growth conditions prior to the crisis, than since the beginning of 2010.

The most significant decline took place in Services, with the pre-crisis average deviation from 50.0 at 7.6 falling to 1.9 average deviation in post-January 2010 period. With STDEV at 6.5 since 2008 (7.4 prior historical), and with skew at -0.7 and kurtosis at 0.73, we are nowhere near average deviation being statistically significantly different from zero since the onset of 'recovery'.

Manufacturing decline has been more modest, given weak rates of growth in pre-crisis period. The average rate of pre-crisis deviation from 50 was 2.6 and that well to 1.1. With historical STDEV of 4.2 and STDEV since 2008 at 5.2, skew at -1.6 and kurtosis of 3.24, this is again indistinguishable from zero growth conditions.

On slightly better side of things and along shorter-run dimension, 3mo MAs are both above zero, but, once again, none are statistically significantly different from zero.

There is a strong, but non-linear relationship between Manufacturing and Services PMIs at levels, and it shows that year on year, relative gains in Manufacturing over 2011-2012 got erased over 2012-2013 and were replaced by relative gains in Services.

Irish PMIs have, however, very tenuous link to actual economic growth. Here are two charts showing this week relationship for log-log growth terms, but exactly the same picture is confirmed by taking simple level deviations in PMIs from 50, as well as for linear and cubic relationships (for robustness):

It is quite telling that Services PMIs have much weaker explanatory power for GDP and GNP growth than Manufacturing PMIs, confirming that Irish services, dominated by ICT and IFSC tax-optimising MNCs are not as relevant to Irish economy as manufacturing sectors.

Another telling thing is that both for Services and Manufacturing, the sectors activity as measured by PMIs has stronger relationship with GDP than GNP - which is also predictable, once you consider the PMIs heavy slant toward MNCs.


Note: raw data on PMIs levels is taken from Markit-Investec releases, with all analysis above, as well as deviations from 50 and all other transformations, including quarterly data computations, undertaken by myself. These transformations and analysis are intellectual property of my own and should not be cited without appropriate attribution.

4/5/2013: Profit margins in Irish Services and Manufacturing: April 2013

Since I've been updating my database on PMI for Ireland (see Manufacturing PMI baseline results for April, as well as a post on Services PMI and a post on latest trends in employment as signalled by PMIs), it is also time to update dynamics analysis on profitability in both sectors.

Now, Services PMI survey covers profitability as a separate question, and it is reported in the post linked above. There is no comparative question in PMI for Manufacturing survey.

Over time, I have been tracking implied profitability changes in both sectors on a comparable basis as a difference between changes in input costs and output charges by the reporting firms. In a sense - it is a metric of profit margins dynamics that is comparable across both sectors.


Profit margins index for Services has declined from -14.29 in March 2013 to -16.39 in April. April reading was worse than -11.96 a year ago and worse than 12mo MA at -15.7. Dynamically, 3mo MA through April is at -15.0 which represents worsening in profitability conditions compared to -13.6 average for 3mo through January 2013 and is worse than -13.8 3mo average through April 2012.

Longer-term comparatives: since January 2012 through April 2013, Services profitability index averaged -15.31 - a rate of profit margins decline that is worse than the average rate recorded for 3 years period of January 2009-December 2011.

Profit margins in Manufacturing sectors have also deteriorated in April 2013 at -7.32, but the rate of deterioration was slower than in March 2013 when it stood at -12.04 and much slower than -22.86 rate of decline in profit margins recored in April 2012.

12mo MA is now at -11.1 and 3mo average rate was -15.2 for 3 months through January 2013, while 3mo average for February-April 2013 is at much more benign -9.9. In other words, there is moderation in the rate of margins decreases in recent months.

Longer-term dynamics are shown on the chart below in terms of 3 year averages. Since January 2012 through April 2013, Manufacturing profitability index averaged -13.83 - a rate of profit margins decline that is better than the average rate recorded for 3 years period of January 2009-December 2011 (-14.1). January 2012-April 2013, average rate of deterioration is still the second worst on the record.

An interesting aside: notice significant improvements in profitability in late 2008 - mid 2010 being exhausted in 2011-present in the Services sector and similar, but slightly differently timed changes in Manufacturing? These nicely coincide with the period of most dramatic unit labour costs declines and overall cost-competitiveness gains in the Irish economy. And, just as those gains virtually stopped in 2011-on, so did profit margins conditions improvements.