20/09/2011: Wholesale Prices - more margins pressure

Wholesale Price Index for Ireland is out today - monthly series (note - these are highly volatile series in general) and the results are not too good for profit margins in Irish manufacturing.

Monthly factory gate prices declined 0.4% in August 2011 against an increase of 0.2% in August 2010, implying annual rate of contraction of 1.0%. In July 2011, annual rate of decrease stood at 0.4%.

Overall price index for manufacturing industries (NACE 10-33) stands at 97.2 in August 2011, down from 97.6 in July and 98.2 in August 2010. We are now in the third monthly decline in a row.

Stripping out effects of food, beverages & tobacco sector, manufacturing price index fell to 92.2 in August 2011, down from 92.5 in July and 94.2 in August 2010. Year on year index is now down 2.1% against annual decline of 1.5% in July.


In the month, the price index for export sales was down 0.5% while the index for
home sales (domestic sales) increased by 0.1%. In the year there was a decrease of 2.2% in the price index for export sales (this can be influenced by currency fluctuations, as CSO correctly points out). In July 2011 annual rate of decline was 1.6%. However, CSO fails to point out that deflation has been affecting severely our largest exporting sectors - pharma and ICT (see below on this). In August 2010, annualized rate of change in export prices was +0.2%.

There was an increase of 4.7% in respect of the price index for home sales (this can be influenced by state-controlled producers ripping-off domestic consumers, but hey, no mention of that in CSO release). In July 2011 there was a 4.9% increase yoy in same prices. And in fact, domestic sales prices have been rising every month since December 2009, implying increasing pressures on retail sector here and domestic consumers.

So the two-tier economy is well supported by price changes as well as production volumes: our exports are getting cheaper (last increases in exports prices yoy were recorded in January 2011), while our domestic sales are getting more expensive and fast. The last time changes in prices in domestic sector fell behind changes in prices (in same direction) in exports sectors was July 2010. And not a peep from either our policymakers or the CSO about these facts.

What CSO does highlight is that: "Contributing to the annual change were increases in Dairy products (+10.1%), Meat and meat products (+8.1%) and Other Manufacturing including Medical and Dental Instruments and Supplies (+3.2%), while there were decreases in Computer, electronic and optical products (-6.4%), Basic pharmaceutical products and pharmaceutical preparations (-3.6%) and Other food products including bread and confectionary (-1.1%)."
Now, recall that pharma accounts for 90% of our trade surplus. Basic pharma sector wholesale prices have now fallen to 87.4 in August 2011, down from 90.7 in August 2010 and from the local peak of 106 attained in November 2008.

CSO does report that "The price of Energy products increased by 3.3% in the year since August
2010, while Petroleum fuels increased by 9.1%. In August 2011, the monthly price index for Energy products decreased by 1.4%, while Petroleum fuels decreased by 3.7%." I would add that electricity remained unchanged at 115.2 year on year and most of price increases in this sector are due to Petrol and Autodiesel (both +9% yoy), Gas oil (+10.3%) and Fuel oil (+8.8%).

Year on year, the price of Capital Goods decreased by 5% in August, to 82.5 and it was down 4.3% in July. The index now stands at 82.5, down from 83 in July 2011 and 86.8 a year ago. Intermediate goods ex-energy price index rose 2% in August (yoy) against yoy rise of 2.7% in July. This index remain in the positive territory since November 2011.

1/09/2011: Manufacturing PMI for Ireland - a mixed bag for August

Figures for PMIs for Euro area economies released today are hardly encouraging:

• German manufacturing index stands at 50.9 in August, close to contraction, against the local peak of 62.7 in February 2011
• Spain's August data shows fastest fall in output since June 2009, with headline PMI at 45.3.

Now, Irish manufacturing PMIs (released today by NCB) are showing no clear direction from the contraction momentum established in July.

Here are the updated figures:

• Core PMI for manufacturing remains in contraction territory for the third month in a row at 49.7 in August, although the index is marginally up on 48.2 in July. Index 12 mo MA is at 52.2 and 3mo MA is now at 49.2. 2010 same-period 3mo MA is 51.4 against 2009 same period 3mo MA of 43.4. This does not square well with the ESRI assertion that stronger economic performance might emerge in H2 2011.
  
• Output sub-index is out of contraction territory in August (52.4) compared to July (49.8), breaking two consecutive months of contraction.
• New orders sub-index, however, is now at 47.7 down from 47.9 in August, marking the lowest point since September 2010. 3mo MA is now at 48.1 and 12mo MA at 52.7. Per NCB analysis: "The decline in business conditions in August mainly reflected a solid reduction in new orders. Panellists indicated that slowing demand had been behind the contraction in new business, which was the fastest since September 2010".
• In contrast to overall new business measure, sub-index for new export orders increased in August to 53.5 since July 51.3. This marks the eleventh successive month of the index being above 50 expansion marker and the first rise since January 2011. However, August reading was still below the local peak of 61.6 attained in February 2011 and stands well below 12mo MA of 55.7, with 3mo AM of 52.1. New exports demand grew, according to the respondents, in aprticularly strongly in the UK.
  
• Backlogs of work in August were reading 41.7, up on 41.1 in July. The fall in overall new business in August drove this further decline in backlogs of work as companies transferred spare capacity to work on existing projects. This is now the sixth successive reduction in outstanding business and the reduction was substantial.
• August responses pointed to a further and sharper reduction in stocks of finished goods with the sharpest rate of stocks depletion since March - down to 45.2 in August from 49.6 in July. Per NCB: "Post-production inventories have now fallen in each of the past 40 months. Panellists reported that they had made efforts to reduce stock holdings over the month."
• After falling for three successive months, employment increased during August, with the rate of job creation being extremely shallow at 51.1 in August, up from contraction in July of 49.1 and breaking three consecutive months of declines.

Last point to make comes from the final chart above: profit margins have deteriorated in August once again from -15.01 to -15.62 as input prices continued to expand at 58.9 in August, down from 59.3 in July, while output prices switched into contraction territory with a reading of 49.7 in August down from 50.4 in July.

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.

03/08/2011: US ISM & Irish PMIs (Manufacturing)

On August 1, US Institute of Supply management monthly manufacturing activity index for July posted the worst performance since July 2009, falling 4.4 points to 50.9 (barely above 50 mark of zero growth). The new orders sub-index dropped into contractionary territory and employment index suffered significant drop. Factory gate prices also contracted signaling a decline in profit margins going forward.

Meanwhile, Irish manufacturing PMIs (published by NCB) for July similarly came in with disappointment. Here are the updated numbers:

• Overall Manufacturing sector PMI declined to 48.2 in July (below 50, signaling contraction of activity), down from 49.8 in June and marking the second consecutive month of contracting sector activity.
• 12-mo average for PMI is now at 52.3, while 3mo average is at 49.9 against previous 3mo average of 56.1.
• In 3-mo to July 2010 PMI stood at 56.1.
• The July reading is the worst since January 2010

• On seasonally adjusted basis, output sub-index also posted second consecutive month of contracting activity with July reading of 49.8, slightly up on June 49.3
• New orders activity was also contracting at 47.9 in July, down from also contractionary 48.7 in June. New orders 12-mo average is now at 53.1 and 3 mo average at 49.8, while previous 3 months average was 58.1.
• New export orders activity continued to grow at a slowing pace, down to 51.3 in July from 51.5 in June and 58.7 in May. 3mo average through July now stands at 53.8 against 3mo average through April at 59.9.

Other sub-indicators:

• Backlogs of work contracted at faster pace of 41.1 in July down from 41.8 in June - the worst reading since August 2009. Sharp decrease in July was mainly reflective of a strong drop in new orders
• Stocks of purchases and suppliers delivery times were all signaling contracting activity
• Stocks of finished goods also signaled tighter manufacturing activity
• Per NCB note: "Attempts by firms to improve cash flow led to a marked reduction in stocks of purchases in July, with the rate of depletion the fastest since August 2010. Stocks of finished goods also fell, although the rate of decline was only slight. Post- production inventories have reduced in each month since May 2008."
  

On profit margins side:

• Again per NCB note: Increased oil and commodity prices led to a further rise in input prices. Despite easing for the fourth month running, the rate of cost inflation remained sharp, and faster than the long-run series average." Specifically: input prices sub-index stood at 59.3 in July, down from 63.5 in June. 3mo average through July now stands at 63.9, while 3mo average through April was 75.1 - an improvement in the rate of inputs costs growth, but these continue on the upward trajectory.
• As NCB note: "In response to higher input prices, manufacturers raised their output charges. However, strong competition and weakening demand meant that the rate of inflation was only slight." Again, output prices sub-index fell to 50.4 in July, from 53.2 in June and 12mo average now stands at 52.8, while 3 mo average is at virtually identical 52.6. This is down from the previous 3moo period (through April 2011) which was 57.4.
• So profit margins are continuing to deteriorate (second chart below).
  

Per chart above last, employment conditions continued to deteriorate in Manufacturing, with sub-index for employment moderating contractionary signal to 49.1 in July from 48.3 in June. This marked third consecutive month of employment sub-index below 50. While 12mo average stands at 50.2, 3mo average through July is now at 49.1, contrasted robustly by 3mo average through April 2011 at 54.0. Same period (3mo through July) of 2010 averaged 49.5 reading.

This, of course is disheartening. The chart below updates the pace of 'recovery' in Manufacturing for July data:

Please note: data is sourced from NCB publication, while all charts and statistical details as well as analysis are supplied by me.

11/07/2011: Industrial production for May 2011

Industrial Production data for May was published earlier today by CSO, so here are updated charts and some core results:

Per CSO: "Production for Manufacturing Industries for May 2011 was 0.3% higher than in May 2010. The seasonally adjusted volume of industrial production for Manufacturing Industries for the three month period March 2011 to May 2011 was 1.4% lower than in the preceding three month period." Let's add some more analysis to that:

• May level of production in Manufacturing stood at 110.9, down 0.18% on 3 months ago and up 0.54% yoy.
  
• There was zero change mom from April.
  
• May 2011 index stood 2.43% above the comparable period in 2007. Last 3mo simple average of industrial production was 1.28% below the same figure for 3 mo before and 1.75
• % above the same period yoy.
  
• So on the net, there is roughly no improvement since Q2 2010.

All industries high level data:

• May index for volumes in All Industries stood at 109.6, up from 109.1 in April (+0.46% mom) and up 0.27% on 3 mo ago. Index is up just 0.09% on May 2010.
• Index is now up 1.56% on May 2007
  
• 3mo average to May 2011 fell 1.24 compared to 3 mo period before but rose 1.27% yoy.
• So just as with volume index for Manufacturing, All Industries volumes remain relatively flat since Q2 2010.
  

Again, per CSO: "The “Modern” Sector, comprising a number of high-technology and chemical
sectors, showed an annual decrease in production for May 2011 of 1.5% while an increase of 4.4% was recorded in the “Traditional” Sector." Some more details:

• Modern Sectors volume of production fell 0.88% mom from 124.8 in April to 123.7 in May, relative to 3mo ago index is down 0.72% and yoy index is down 1.12%. Index is now 13.51% above the reading in may 2007 - an impressive cumulated performance.
• However, the current 3mo average declined 1.93% on previous 3mo average, though March-May 2011 stands 0.79% above the same period average year ago.
• So again, moderately flat trend along 123.8 since Q2 2010.
• Traditional sectors reversed 3 consecutive months of relatively shallow declines in May to show a 5.83% mom improvement - a strong monthly gain. Index is now 4.04% up on 3mo ago and 4.16% up yoy. However, index remains 12.78% down on May 2007 levels.
• Traditional sectors volume index average for 3mo to May is 0.26% above 3mo average for the period before March and 2.25% above same reading for 2010.
• On the net, strong showing in Traditional Sectors in terms of volumes.
  

What about the Turnover indices:

• Turnover index for Manufacturing Industries rose to 99.6 in May from 98.2 in April (and increase of 0.91% yoy and 1.43% mom). This seems to contradict recent PMIs showing compressing profit margins in recent months, though PMIs are leading indicators while the reported indices reflect activity at the time. Turnover in Manufacturing is now 7.06% below the same reading for 2007. 3mo average through May 2011 is 2.79% below that for the 3mo period through February 2011 and 2.48% above the comparable period in 2010. The change during 2011 so far is not enough to attain the 12mo high of 102.1 achieved in January 2011, though we are moving in the right direction.
  
• Turnover index for Transportable Goods industries also rose from 97.8 in April to 99.2 in May, registering a mom increase of 1.43%, a 3mo rise of 0.61% and a yoy increase of 1.02%. Relative to may 2007, index now stands at -8.18%. 3mo average has moved down 2.67% relative to 3mo through February 2011 and is up 2.34% yoy.
• Finally, New Orders Index rose strongly from 98.4 in April to 100 in May, up 0.20 on 3mo ago, +2.35% yoy and +1.63% mom. Index is now down 7.42% compared to same period in 2007. 3mo average through May fell 3.58% compared to 3mo average through February, but is up 2.47% on a year ago.

To sum, up, slower growth rates in Turnover Indices and New Orders index, as well as contracting indices in volumes for Manufacturing and and Modern Sectors, plus slower growth in Volume index for All Industries suggest that overall PMI signals of slower growth through May are holding. Traditional industries bucked the trend here, but we can expect further small slowdowns in June and July. Growth, to put it briefly, is flattening out in the sector.

02/07/2011: Irish Manufacturing PMI

Last month I was expressing some concerns about the direction of the PMIs, as well as questioning the argument that confidence of its own, is causally capable of driving fundamentals, rather than reflect them. The latest data for PMIs in Manufacturing from NCB Stockbrokers released today (covering June 2011) confirms the validity of my concerns. Here are the headlines:

• Manufacturing PMI for June fell to 49.8 - below the critical 50 mark, implying contraction in the overall manufacturing activity. The PMIs are down from 51.8 in May 2011. This is the first time since September 2010 that PMIs are below 50. While in order to establish a trend the PMIs should drop below ca 48, the swing from 51.8 to 49.8 is statistically consistent with at least 70% chance of this drop being a sign of real deterioration.
• The 12mo MA now stands at 52.6, with 3mo average at 52.5 down from 56.1 in 3 months for January-March 2011. Same period 3mo average for 2010 was 53.1 and for 2009 it was 39.3.
• Output overall also moved into contraction territory with June reading of 49.3 down from May reading of 52.6. Again, the magnitude of the swing is statistically significant. 12 mo MA now stands at 54.0 while 3mo average at 53.5 down from the previous 3mo average of 59.2.
• Output has not been below 50 since February 2010.
  

• New orders are down to 48.7 in June from 52.9 in May - a very strong decline and are now below 50 for the first time since September 2010. In Q2 2011 the average new orders reading was 53.0 against 58.6 for Q1 2011. 12mo MA is 53.3 in June 2011 well ahead of the current monthly reading.
• New export orders are the only component of PMIs that still signals expansion, albeit at 51.5 in June this expansion is much slower than 58.7 recorded in May 2011. New exports orders 12mo MA in June was 56.0. Q2 2011 reading of 56.4 is significantly below Q1 2011 reading of 60.4. same period average for 2010 was 57.4.
• Backlogs and inventories are also signaling troubles ahead. Per NCB analysis: "As has been the case in each month since March, backlogs of work at Irish manufacturers decreased in June. Moreover, the rate of depletion accelerated sharply to the strongest since October 2009. According to respondents, reduced demand was a key factor behind the fall in outstanding business. More than 31% of panellists reported a drop in backlogs over the month, compared with just 9% that posted a rise." While inventories are still being depleted, the rate of depletion has slowed down to lowest since May 2008.
• Suppliers delivery time extended to 19 months with the survey respondents highlighting "both shortages of raw materials and capacity pressures at suppliers as reasons for the latest deterioration."
• Lastly, for the second consecutive month Irish producers cut back on their purchases of inputs into production in line with falling orders.
  

• On prices front, "June data pointed to a further considerable increase in input prices at Irish manufacturing firms. Input costs have now risen throughout the past year-and-a-half. However, the rate of inflation eased for the third month running to the weakest since September 2010. Respondents noted that oil-related costs had been a key factor behind higher input prices." Input price index stood at 63.5 in June - down from 68.9 in May and down on 3mo and 12mo averages. At the same time, output prices index fell from 54.3 in May to 53.2 in June. "The rate of inflation [in terms of output prices] moderated for the third consecutive month to the slowest in the current period of increased charges. Panellists reported that the passing on of higher raw material costs to clients was the principal cause of the latest rise in output prices." So output prices are not catching up with input prices, implying margins are not being rebuilt.
  

• In terms of employment, "staffing levels at Irish manufacturing firms decreased for the second consecutive month in June, with respondents largely attributing this to falling workloads. The rate of job cuts accelerated to the steepest since September 2010. All three monitored market groups posted a decline in employment." Employment index in manufacturing fell to 48.3 in June from 49.9 in May. The index now stands below 12mo average of 50.2, Q1 2011 reading of 53.2 and Q2 2011 average of 50.7. Q2 2010 reading was 49.0 - ahead of June 2011 reading.

All of this means that I was correct in pointing to the weaknesses in PMIs in May 2011 and, unfortunately, it means that per PMIs our Manufacturing has now re-entered a recessionary territory:

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.

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.

05/01/2011: Manufacturing PMIs - December 2010

Manufacturing PMIs were released earlier this week by NCB Stockbrokers (a truly useful service for all concerned with the Irish economy - see the third post on PMIs to come for the true reason). Here are the updated charts and some comments:
First what matters most on GDP side - second consecutive month of declining growth on New Exports Orders side - December reading was at (still expansionary) 54.0, down from 54.7 in November and 54.9 in October. 12-months average was 55.5, so we have a signal of relative growth slowdown into Q4 (average 54.5), compared with Q2 and Q1 (averages of 57.4 both), but of Q3 (52.7).

Total New Orders are robustly up to 53.2 reading for December (12-months average is 51.7), but December increase was not enough to push poor performance in Q4 (average for the quarter is 51.6).

Overall PMIs for Manufacturing are signaling relatively positive momentum, rising to 52.2 in December, from 51.2 in November, marking third consecutive monthly rise. December reading is above 12-months average of 51.2 as is Q4 average reading (51.4).

Here's a close-up:
But what about capacity?
So far, capacity remains below growth line (50 reading signifies expansion, of course), suggesting - strongly - that Irish companies are not running out of existent capacity yet. Which means productivity will continue grow, and that's the good news. The bad news is that with capacity remaining underutilized, there's no real hope for strong growth in either wages or employment.

Although index of Employment rose above 50 line - reaching 50.5 in December for the first time since May 2010 (when it stood at 51.5 - and then again, nothing really happened on employment side, as sustained jobs creation will require consistent above 51.3-52 readings in the index). Clearly, Employment prospects have improved - December reading was 2.6 points above 12-mo average reading of 47.9, and Q4 average - at 49.9 - is almost touching jobs-neutral expansion.

Most worrisome to me is the New Exports Orders data - as discussed above, although the series is generally more volatile than Total Orders series, it is clear to me that going forward, domestic demand of the Total Orders is not going to hold.

Another issue - more of a question, than concern is: backlogs of orders rising appears to be driving up forward employment expectations. There seem to be some 3mo plus lag in the two series, so delivery time remaining relatively benign, but under pressure, it is difficult to make a call on employment index reading. That said, employment index for manufacturing does show stronger correlation, historically with overall sector PMIs than in the case of services (but more on this in the third post on PMIs later today.

Again, the credit for data goes to NCB Stockbrokers, but analysis (and any errors it may contain) is solely my own.

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.
  

Economics 25/02/2010: Wholesale prices - deflation is still a problem

Wholesale and Producer prices are out today for Ireland, January 2010.

Per CSO: Monthly factory gate prices are up 1.5% in January as compared to 0.4% rise a year ago. Annual percentage change now stands at -2.8% in January 2010, compared with an annual decrease of 3.8% in December 2009.

Exports prices rose strong 2.0%, while the index for home sales was down 0.2%. In the year there was an increase in the exports price index of 3.3%, primarily due to positive currency movements and a decrease of 0.9% for domestic sales prices.
Producer price deflation is moderating
but this moderation is driven primarily by external factors.

January 2010 most significant changes were:

• Basic chemicals (+4.9%),
• Pharmaceuticals and other chemical products (+1.7%)
• Other food products including bread and confectionery (+1.4%),
• Beverages (-0.3%)
• Building and Construction All material prices increased by 0.9% in the month

On an annual basis:

• Basic chemicals (-9.6%),
• Office machinery and computers (-4.1%),
• Radio, television and communication equipment (-3.7%),
• Other food products including bread and confectionery (+1.8%)
• Tobacco products (+7.8%)
  
• Building and Construction All material prices -1.4% in the year since January 2009.

Capital goods – a very important driver for recovery, posted a yoy price drop of 0.6%, and a mom rise of 0.4%. Thus, mom changes were too weak to signal any significant turnaround in business investment cycle.

Wholesale price of Energy products fell 3.9% in the year since January 2009, while Petroleum fuels increased by 24.1%. In January 2010, there was a monthly increase in Energy products of 0.8%, while Petroleum fuels increased by 2.7%.

Overall, therefore, while some moderation in deflation at wholesale level is evident, there is not enough momentum to suggest that we are out of the woods yet. Chart above clearly shows that the deflationary trend prevalent since May 2009 was broken in December 2009 and the positive trend has accelerated in January 2010. It will require 1-2 months of continued upward trend to signal sustained movement toward a recovery and the risk here is for a double-dip.

The same stands for Industrial producer prices (Manufacturing). But there is far less optimism in the numbers for Capital goods, which show more volatility and reversals than broader indices.