7/5/2012: Analysis of April Irish PMIs (4): Profitability

This is the last post on April 2012 PMIs. In the first and the second posts, I covered headline index readings forManufacturing PMI and Services PMI for April 2012. In the third post, I looked at the Employment sub-indices for both sectors. This post will focus on profitability conditions, an index I derived from the PMI data.


April 2012 saw profit margins conditions deterioration slowing down in Services from -15.06 in march to -11.96 in April. 12mo MA is now at -15.9, shallower than the average deterioration in profit margins during the pre-crisis period (-17.8), but deeper than -14.7 average reading for the period since January 2008. Overall, -11.96 April 2012 reading is the slowest pace of profit margins deterioration recored since October 2010. 3mo MA is now at -13.8 and this marks a significant improvement on -19.8 deterioration for 3mo MA a year ago.

Manufacturing profitability index has moved from -24.84 in March 2012 to -22.86 in April 2012, marking the second sharpest decline since March 2011. 12mo MA is now at -17.1, while 3mo MA is at -23.3. This compares against pre-crisis average reading of -11.6 and January 2008-present average of -14.55.

So on the net, profitability conditions continue to deteriorate, but deterioration in Services is less pronounced and de-accelerating continuously compared to historic trends. Deterioration in Manufacturing profit margins continues unabated and is running well beyond historical averages.


The above suggests that while some positive momentum is possible for employment in Services sector, it is unlikely that profits conditions will support much of an employment uptick in Manufacturing.

5/3/2012: Profit Margins in Services and Manufacturing: February PMI

In the previous three posts I covered Manufacturing PMI, Services PMI and employment sub-indices from February 2012 PMIs releases. In this post we shall take a look at profit margins in both Services and Manufacturing.

All original data is courtesy of NCB, with analysis provided by myself. Indices reported below are derived by me on the basis of proprietary models.

Chart below clearly shows the dynamics in profitability across two sectors:

• Based on movements in Services index components for input costs v output charges, profit margins index in the sector has posted slightly slower rate of deterioration in February (-14.23) against January (15.08). This marks the second consecutive month of slower declines in profit margins. Thus, 12mo MA stands at -17.0 and 3mo MA through February 2012 is at -15.9, an improvement on previous 3mo MA of -16.4.
• Profit margins conditions in Manufacturing have deteriorated in February (-22.31) compared to January 2012 (-17.67) marking the 5th consecutive month of deepening declines. Thus, 12 moMA is now at -17.2 and 3mo MA at -18.7 against previous period 3mo MA at -11.1.

So tougher conditions for profitability in both sectors and, in line with that, tougher stance on employment front.

05/11/2011: Profit margins in Ireland: October 2011

Derived profit margins have continued to deteriorate in both manufacturing and services based on my analysis of the PMI data for October.

Per chart below:

• Profit margin conditions in Services sector posted slower rate of deterioration with differential between output and input prices moving to -15.38 in October from -18.52 in September. The differential averaged -17.2 in 12 months through October and -16.2 in 3 months through October. In 3 months through July 2011, the average differential was -17.4 and 2010 average for 3mos through october was -8.1 against 2009 same period reading of -5.6.
• Profit margins in Manufacturing have accelerated downward in October, reaching -10.87 differential against September -9.67. 12mo average through October was -19.6 and 3mo average through October was -13.4 against 3mo average through July of -19.7. 2010 average for 3mos though August was -16.4 and 2009 same period average was -11.5.

05/10/2011: Profitability data for September

Irish PMIs for Manufacturing and Services, as well as their employment sub-components, are all continuing to signal lack of substantive recovery in the real economy. In the mean time, despite relatively strong confidence, profit margins are tanking across the main sectors. Here's the latest data:

• In September profit margin index (differential between output prices index and input prices index) in Services has fallen to -18.52 from -14.6. The index now stands well below all medium and long term averages. 12mo average is at -16.5, same as Q3 2011 average, a slight improvement on Q2 2011 average of -18.1. However, 2010 Q3 average was -9.1 and 2009 Q3 average was -5.6, implying dramatic worsening of the margins in the Services sector on 2009-2010. The last time profit margins were positive for Irish Services sector companies was in June 2009.
• In September profit margin index in Manufacturing was -9.67 adding onto dismal reading of -15.62 in August. 12mo average is at -19.6, and Q3 2011 average was -13.4, an improvement on Q2 2011 average of -19.7. Last time profit margins in manufacturing moved in favor of Irish producers was in February 2009.

As margins usually translate into expansion, investment and, thus, employment, the above numbers are not encouraging...