3/8/2012: Irish Services PMI: Disappointing July

So following cracking Manufacturing PMI performance in July (see posts here , here and here on the subject), it was only predictable (based on all indicators relating to the sector activity) that Services PMI will put a boot into our hopes for growth. In that, the PMIs did not deviate from forecast.

Irish Services activity continued to decline in July, with headline PMI for Business Activity falling to 49.1 from 49.4 in June. This marks third consecutive month of sector activity below 50 reading. 12mo MA is now at 50.7, well ahead of the current reading. 3mo average through July is at 49.2 - signaling mild contraction, previous 3mo average through April is at 52.5. In 2011 3mo average for the same period was 51.5 and in 2010 it was 54.5. Not good dynamics for 2012 since May.

New Business activity also slowed down to 49.5 from barely expansionary 50.3 in June. 12mo MA is at 50.2 - effectively showing zero growth, while 3mo average through July is at 49.8 (ditto, but to the downside risk) and this contrasts with relatively robust 52.8 3mo average through April 2012.

Looking at the snapshot of the recent activity clearly shows lack of any breakout momentum in the series from the flat growth trend established around Q4 2010.

Other sub-series were all over the place.

• Employment tanked to 48.3 from already abysmal 49.2 in June. This is not surprising, as the sector has been signaling employment losses pretty much uninterrupted since the beginning of the crisis. 12mo MA is now at 48.1.
• Output prices continued to contract at 44.2 from 44.6 in June, while input costs rose at 52.3 on foot of 52.7 in June. Which means profitability tanked.
• New export business indicator jumped to 55.7 in July from 54.2 in June, but this is hardly surprising, since the index has been showing robust expansion for 12 months now, following a surprise drop to 49.6 in July 2011. 12mo MA is at 53.2, 3mo average through July is at 54.2. These are really hardly credible numbers, or rather, these are the numbers showing that our Services sector exports have very little to do with employment or overall business activity in the sector itself. In other words, this shows that our services exports are as captive to MNCs as our manufacturing exports.
• Profitability - as measured by PMI (note, I produce my own metric, which will be reported later) - tanked again to 43.8 in July against 43.0 in June.

In the next couple of posts I will be covering combined results for Manufacturing and Services PMIs and a special note on Confidence metric - in honor of the KBC/ICA 'survey' results released yesterday.

5/3/2012: Services PMI - some improvement in February

In the previous post (here) we looked at the latest PMI data for Manufacturing. This post updates data for Services PMI. Subsequent posts will deal with employment and profit margins across both sectors.


As before, all original data is courtesy of NCB, with analysis provided by myself. Some of the indices reported are derived by me on the basis of proprietary models and are labeled/identified as such.

Table below summarizes main data:

 
Per chart above, core Business activity in the sector showed improved dynamics in February (53.3 - statistically significantly different from 50) relative to contractionary reading in January (48.3). 12moMA is now at 51.0, while 3mo MA is 50.0, suggesting that the series are returning to the moderate growth trend established since the beginning of 2011.

Per chart below, the trend in overall Services PMI is driven by New Business Activity which also showed significant improvement in February (53.5) against January (49.7), with 12mo MA now running at 49.8 and 3mo MA at 50.2.

The following chart plots a number of sub-indices. The critical one is New Export Orders which shows significant increase mom into solid growth territory. The sub-index rose from 52.8 in January to 55.2 in February, with 12mo MA now at 52.5 and 3mo MA running ahead of that at 53.4.

Another critical sub-index is Employment, which remained disappointingly below 50 mark at 47.9, but improved from 44.5 in January. 12mo MA is at a very poor level of 47.7 and 3mo MA is at even worse level of 46.6. The sub-index has now been showing contraction in employment since May 2011, and barring April 2011 strange move above 50 mark, the sub-index remains signaling rising unemployment since February 2008. I will deal with employment signals in more details in the subsequent posts.

Lastly, February data showed slight moderation in the price deflation in terms of output prices/charges from 46.7 in January to 47 in February. On the other side of the profitability equation, input costs inflation moderated to 54.8 in February from 55 in January. The two indicators combine to result in slowdown in the deterioration in profit margins from 42.5 in January to 48.2 in February. Please note, this is not the same as an improvement in the profit margins. Profitability sub-index is now averaging 44.6 for 12mo MA and 45.3 for 3mo MA. There is basically continued shrinkage in the profit margins for Irish Services suppliers every month since December 2007. More detailed analysis of profitability will be posted in subsequent posts.

In the next post we will look at the Employment signals coming from the Manufacturing and Services PMIs.

09/12/2011: Services PMI for November

With all the excitement around the Budget Days, few data series fell into a longer-hold folder. So some catching up is in order. I covered Manufacturing PMI release by NCB in a recent post here. Let's update data for Services PMI before getting back to the core newsflow from Europe.

Services PMI continued signaling expansion and surprised to a slight upside in November. Overall Business Activity Index posted a rise from 51.5 in October to 52.7 in November and the index reading has now been in the expansion territory since January 2011. Year-to-date average is 51.6 and 3mo MA through November is 51.8, while 3mo MA through August was 51.7. As chart below shows, Services activity has been on a higher level, but relatively flat trend since around Q2 2010.

New Business Activity sub-index posted even stronger performance in November, moving from the contractionary 49.7 reading in October to an expansionary 52.6. Year-to-date average is 49.5 and 3mo MA through November is at 49.9, against 3mo MA through August at 48.8. The trend is slightly up recently toward sustained expansion, but it remains shallow and relatively flat since October 2009.

Summary of a more recent data snapshot for the two core indicators below:

Virtually all other series also posted improvements and only two sub-series - Profitability and Employment - remain in contraction (more on these in follow up posts).

Chart above highlights continued pressures on profit margins with Input Prices posting robust expansion in November, against Output Prices posting moderating contraction. Output prices now remain mired in continued contraction since October 2008.

So on the net, decent news on Services side, especially given the conditions in the global economy. However, it remains to be seen if these gains are sustainable over time and have any strengthening momentum that would be required to make a significant contribution to overall growth.

04/11/2011: PMI for Services: October

NCB Services sector PMI data is out today and as in the case of Manufacturing earlier last week (see details here), we have an effectively flatline economic activity in the sector. Here are the details.

Overall business activity index reading improved marginally from 51.3 in September to 51.5 in October. 3mo average through october is now at 51.3 against the 3mo average through July 2011 of 51.5. Year-to-date 2011 reading is 51.9 and same period 2010 reading was 51.0 with same period 2009 reading of 39.7. In other words, all data falls within the range of statistically indistinguishable from 50. Chart below illustrates.

The snapshot chart below shows the shorter-range PMI for Services plus the core driving constituent of activity - New Business sub-index. Worryingly, the latter remained in contraction territory at 49.7 in October, for the 6th month in a row. Year-to-date average is at 49.5, again signaling contraction, and 3mo through october average is 48.4 against 3mo through July average of 48.9. So things are getting worse, not less worse on a smoothed trend. Year-to-date period in 2010 saw average New Business sub-index at 50.2.

Profit margins (chart below) are moving in the wrong direction as well. Output prices sub-index remains at extremely rapidly falling 44 in October, same rate of contraction as in September. 3mo average is at 43.8 and year-to-date is 44.2. Last time output prices were expanding was in July 2008. Meanwhile, Input prices sub-index continues to signal inflation in intermediate and raw materials inputs at 52 in october on the back of 54 in September. Year-to-date average is 53.8 and 3mo through October average at 52.2 virtually identical to 52.4 average for 3 months through July. More on profit margins in a follow up post which will cover profits conditions in both manufacturing and services.

 Profitability sub-index (as per above discussion), illustrated in chart below remains under water. However, Business Confidence Index posted another 'we don't want to face reality' expectation reading, showing robust expectations of economic expansion from services providers. The sub-index rose to a massively expansionary 63.4 in October from 59.5 in September and the longer term trends are consistent with this reading. Of course, I have shown previously that Business Confidence component of the PMI has virtually nothing to do with the real performance metrics as measured by PMIs - the new orders and employment sub-index. This conclusion was based on econometric analysis performed on the entire time series for the data and tested for lags and directional causality.

Worryingly, New Exports Orders sub-index moved from expansionary 53.1 reading in September to virtually stand-still at 50.1 in October. This compares unfavorably against the 53.0 average for year-to-date and even against 3mo average of 51.2 through October. The above, alongside with 3mo average of 52.4 in 3 months through July suggests downward trend in overall growth in exports-related services.

 Lastly, employment in the sub-sector continued to contract. October reading of 46 was identical to September reading and signals significant contraction. The story is virtually identical to Manufacturing and will be subject of mored detailed discussion in the following post.

So on the net, there as flat-line performance across the sector in October, with majority of trends in sub-indices pointing to contraction in months ahead. Not good news, I am afraid, despite the 51.5 reading on overall PMI Services Business Activity index.

05/10/2011: Employment conditions in Services & Manufacturing

September PMI for Manufacturing and Services have signaled continued weaknesses in much of the activity, including:

• Core PMIs: Manufacturing PMI sliding deeper into red at 47.3 in September against 49.7 in August, while Services PMI posting weak growth at 51.3 in September up from 51.1 in August.
• Overall New Business Activity falling for Services from already contractionary 47.9 in August to 47.5 in September. In Manufacturing, New Orders activity fell from 57.7 in August to a miserable 45.8 in September.
• Much of the above performance is posting repeats month on month since May-June 2011 and there is little hope for this to change any time soon.

However, it is in the employment sub-indices where the entire nature of our exports-led 'recovery' becomes apparent.

• Employment sub-index in Manufacturing in September stood at 46.5 down from 51.1 in August, with year-to-date average of 50.7 and Q3 2011 average of 48.9.
• Employment sub-index in Services in September was 46.0 down from 48.2 in August, marking the fifth consecutive month of contracting employment.

The chart below shows clearly that we are in a jobless 'recovery' scenario for Services (with 'recovery' part of the equation being extremely weak) and in recession scenario for Manufacturing:

And the next chart shows that the 'exports-led recovery' tale is not alleviating the misery of unemployment reality, as predicted.

05/10/2011: Services PMI for September

Unlike Manufacturing PMI (see details here), Services sector PMI continued weak expansion in September. However, underlying momentum remains extremely weak and the tenuous recovery is, as previously, jobless. Here are the details:

Overall Services PMI rose from 51.1 in August to 51.3 in September - both the increase and the level above 50 are statistically insignificant, but welcome, nonetheless. This marks ninth consecutive month with index reading above 50, although only in January and February did the rate of expansion rise statistically above zero. 

The rise in overall activity was recorded in spite of a drop in overall new business from 47.9 in August to 47.5 in September. New orders fell at a statistically significant pace that was the fastest since December 2010. Per NCB statement: "Anecdotal evidence pointed to weakening economic conditions, and a related drop in client confidence."

 

The widening gap between new business activity and PMI core activity reading is now present in 10 of the last 12 months:

Confidence levels remained well in the expansion territory at 59.5 in September, virtually unchanged on August reading of 59.4. It is worth noting that confidence reading has no statistically significant bearing on actual activity as I have shown in previous research. Overall, per NCB release: "Respondents to the survey remained optimistic that activity will be higher in 12 months’ time than current levels, although the level of positive sentiment was largely unchanged from the muted
level seen in August. Growth of external demand was reportedly a factor behind the latest optimism." The reason for the use of the word 'muted' is that confidence levels readings stood above 60 in all months between December 2010 and July 2011 with the year-to-date average reading of 63.0 and Q3 reading of 60.3.

In contrast to the trend seen for total new business, new export orders rose in September to 53.1 from 50.4 in August - a statistically significant increase. With new business from abroad now rising in eight of the past nine months, the tenuous recovery in the sector is driven solely by exports (that and probably Nama, plus continuous reshuffling of chairs on the banking sector Titanic's decks). However, new exports orders expansion is still running below the longer term averages. Q2 2011 average was 54.0 against Q3 2011 average of 51.0 and year-to-date average is 53.3.

Services providers continued to cut the backlogs of work as slowdown in new orders hit and this was in line with previous months contractions.

Employment levels fell solidly, and at the fastest pace since April 2010 with Employment sub-index now at 46.0 against 48.2 in August. Employment in the sector has now been shrinking every month since March 2008 with exception of one month.

More on employment and profitability in both Manufacturing and Services in the subsequent post. Price movements in services between input costs and output prices continued to pressure profit margins in the sector:

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.

04/08/2011: Services PMI for Ireland - July 2011

NCB Economics released Services sector PMI for Ireland for July. I posted on latest data for Manufacturing PMI yesterday (here).

Unlike Manufacturing PMI, Services sector data points to continued expansion, albeit at a slower pace. Headline numbers are:

• Overall Services sector business activity stood at 51.7 (above 50, but not statistically significantly) in July, down from 52.4 in June. Year-to-date average is now at 52.1, against YTD 2010 average of 51.0 and well ahead of YTD average for 2009 of 36.8. 3mo average through July 2011 is 51.5, below 3mo average through April 2011 of 52.1. Hence, overall, disappointing result, but still remaining in the expansionary territory consistently since December 2010.
  
• New Business sub-index in July fell marginally to 49.2 from 49.4 in June, marking third consecutive month of below 50 readings. YTD 2011 average is now at 50.0 and marginally below 50.2 reading for January-July 2010, but well ahead of the abysmal 36.2 reading for the January-July 2009 average. 3mo average through July, however is firmly in the contraction zone at 48.9 against 3mo average through April at 51.9.

A more recent snapshot of data:
Other sub-indices also showed renewed weaknesses:

• Backlogs of work posted a sharp monthly decline from 44.5 in June to 43.9 in July, suggesting severe weaknesses in the short-term pipeline. The sub-index is now in the contraction territory for every month since July 2007.
• New export business crossed over into contraction territory for the first time since December 2010, with July reading of 49.6 from June reading of 53.1. Year-to-date average for 2011 is now at 53.7, dangerously close to 53.6 reading in the same period of 2010. Most recent 3-mo average is at 52.4, down from previous 3mo average of 54.6.
• Business expectations reading was the only one that posted positive change, rising from 60.3 in June to 62 in July - a high and strong reading for the indicator. However, 3mo average through July 2011 - at 61.5 - is still below 3mo reading through April 2011 (66.5).

On profitability side:

• Output prices signaled continued and deepening deflation at 42.3 in July from 43.5 in June, marking 4th consecutive month of dropping output prices.
• Input prices also eased in index reading, but remain at inflationary levels, with July reading of 50.6 down from June 51.8.
• So prices wedge acted to reduce further profit margins. Profitability sub-index of PMI has moved to 44.9 in July, marginally better than June 44.8, but still deeply below 50.
  

Derived index of profit margins in Manufacturing and Services - computed by me, based on NCB data - now show a slowdown in the rate of profit margins depletion in Manufacturing, but widening in Services:

• Profit margins index in Manufacturing in July stood at -15.01, down from -16.22 in June and well below 12 months average, the 3mo average and comparable readings for 2010.
• Profit margins index in Services had reached deeper into contraction territory with -16.40 reading in July against -16.02 reading in June. The 12mo average stands at -14.6.

So just as in the case of Manufacturing, Services PMI signals disappointing results for July 2011 and weak signals for forthcoming months.

05/07/2011: Employment in Services and Manufacturing - June 2011

As promised earlier, analysis of employment data from Manufacturing and Services PMIs for June 2011.

• Headline on Services PMIs: After posting only marginal growth in the previous month at 50.5, Irish services activity rose at a faster pace in June to 52.4. However, overall Q2 2011 average at 51.0 signals lower rate of expansion than Q1 2011 at 53.4. Current index is above it's 12mo MA of 51.6.
• Headline on Manufacturing PMIs: June activity signals a slowdown at 49.8, down from expansionary May reading of 51.8. Q1 2011 expansion of 56.1 average has moderated through Q2 2011 to 52.5. 12mo MA is at 52.6.
• Employment sub-index in Manufacturing showed further acceleration in the rate of decline from 49.9 in May to 48.3 in June. The sub-index now stands below 12mo MA of 50.2. Q1 2011 average was expansionary 53.2 and despite two consecutive months of contractions, Q2 sub-index still reads 50.7. This compares favorably relative to Q3 2010 reading of 46.8 and Q4 2010 reading of 49.9. Employment in Manufacturing has now fallen for two months, breaking expansionary readings trends established over December 2010-April 2011.
  
• Employment sub-index in Services remained flat at 48.1, signaling continued contraction in May and marking a second consecutive month of contractions since an outlier expansion in April 2011 to 51.1. 12mo MA is now at 48.7, while Q1 2011 reading was 49.2, accelerating down to 49.1 in Q2 2011. In comparison, Q3 2010 reading was 48.9 and Q4 2010 reading was 47.6, so the rate of jobs attrition in the sector has declined in H1 2011 relative to H2 2010. With April 2011 out-of-line reading of expansion, this index remains in contractionary territory in 39 out of 40 last months

With both Manufacturing and Services signaling contractions in employment, we are now firmly into jobless recovery territory in Services and stepping into the recessionary territory for Manufacturing.

It is worth noting that volatility of employment sub-index has risen since the beginning of the crisis in Manufacturing, but declined in Services, most likely due to the persistent trends in domestic services. The same pattern is true for core PMIs.

05/07/2011: Services PMIs: June 2011

Services PMIs for Ireland are out today for June from NCB Stockbrokers. Last week, manufacturing PMIs came in disappointingly low, signaling renewed contraction in the sector (see details here). The headline numbers for services are:

• Core PMI reading for Service has risen to 52.4 in June from 50.5 in May - a reasonably strong increase. Controlling for volatility, last 3mo average stands at 51.0, down from the Q1 2011 average of 53.4, and below 12mo MA of 51.6, which means that the current reading is still short of Q1 2011 average, but ahead of it's own quarter average and historical average.
• Q2 2010 period average was 52.9, ahead of Q2 2011 average of 51.0. To compare to the dire conditions in 2009 - Q2 2009 average was 38.0. Now, remember, PMI is not an absolute measure of activity, but a relative one, which means that given a deep fall-off of 2009, we need strong growth - again, my benchmark would be to see PMIs in 60s+ - in 2010 and 2011 to compensate for the declines in 2009. This not happening. Still, it is good to see the index sticking above 50 for the 6th month in the row.

• New business index - my concern last month - has notched up on May, rising from 48.2 in May to a still contractionary 49.4 in June. Current reading is consistent with the Q2 2011 average and is down on both Q1 2011 average of 50.9 and 12mo average of 49.9. Q2 2010 reading was 52.6. Again, as with core PMI Q2 2009 reading was 37.5 - abysmally low, but there was no recovery since then, as new business index was stuck below 50 in all months except April-August 2010 and February-April 2011, furthermore, index never reached beyond 54.0 (June 2010), so no momentum in terms of new business orders recovery.
  

Note in the above chart, that we now are two consecutive months running with core PMI signaling weak expansion, while New Business Orders PMI stuck in contraction zone.

In terms of other components - note, I will be covering employment in a separate post for both Services and Manufacturing PMIs:

• Backlogs of work have declined again in June - from 44.9 in May to 44.5 in June, implying that service providers shifted more resources to complete unfinished work. Q2 2011 average stands at a contractionary 45.3, down from Q1 2011 average of 48.0 and 2010 Q2 average of 48.8. 12mo average reads 45.6.
• Employment index remained flat at contractionary 48.1, down from expansionary 51.1 in April. With April 2011 out-of-line reading of expansion, this index remains in contractionary territory in 39 out of 40 last months. More on this later.
• Output Prices/Charges index has fallen further into contraction (deflation) territory, declining from 43.9 in May to 43.5 in June and marking 35th consecutive month of declines (in a separate post I will be covering the issues of profit margins, so stay tuned for more on output/input prices divergence).
• Input prices have remained in expansion territory, although the pace of inflation has moderated further from 54.7 in May to 51.8 in June, with June marking 3 consecutive month of moderating input prices growth.
• Confidence / Business Expectations index has shown lower rate of growth, with June reading of 60.3 coming in behind May index reading of 62.3. Overall, Q2 2011 average was 63.1 and Q1 2011 average was 65.8, while 12mo average stands at 64.0, so clearly confidence is getting stronger slower. This is largely irrelevant in my view, as the index reading was averaging 50.7 (growing confidence) during the abysmal Q2 2009, just as other components were showing massive fall-off the cliff for services activities in Ireland. In addition, I have previously shown that over the entire life-span of the series data, confidence failed to act as a predictor of any real future activity (core PMIs, New Orders, New Export Orders or Employment) in the sector.
  
• New Export Business index continued to signal expansion, albeit at lower rates with June index standing at 53.1 down from 54.4 in May. Q2 2011 average now stands at 54.0 against Q1 2011 average of 54.8. 12mo average is 53.6, while Q2 2010 was 56.5. So data suggests a clear slowdown in the rate of exports growth. This, of course, is an important indicator as CSO does not report monthly series for services exports.
  
• Finally, profitability index has moderated the fall recorded in May, rising from contractionary May reading of 41.4 to still contractionary 44.8 in June. June reading is now ahead of Q2 average of 43.7, and Q1 2011 average of 43.5, but behind Q2 2010 average of 48.0 and behind 12mo average of 45.5. Again, more on profitability in a separate post

05/01/2011: Services PMIs - December 2010

Today's data from NCB Stockbrokers on Services PMIs (Manufacturing sector PMIs were covered in the earlier post here). The trends are generally worrisome:
First the headline numbers:

• Overall business activity index in services sectors has dipped below expansion mark of 50, with December reading of 47.4 signaling an outright and sharp-ish contraction. 12-months average for the sector was 50.7 - hardly blistering growth, but still a notch above the waterline. Q4 average is now at 49.7 - a steady decline from the annual peak of 52.9 in Q2 and slightly less impressive 52.5 in Q3.
• New Business index fell to 46.2, marking 4th consecutive month of below 50 performance. 12-months average is at 49.8, with Q4 reading of 46.8 being the lowest quarterly average of 2010.

A snapshot of the series:
Now to detailed sub-indicies:
Since I will be posting separately on employment, it is just worth mentioning that (a) employment index remains under water since February 2008 - marking a truly scary contraction stretching uninterrupted over 34 months now, and (b) employment index fell even lower in December (to 47.8) than in November (48.7).

The rest:

• New Export Business index is in contraction territory with December reading of 49.7 being the first sub-50 month since August 2009. 12-months average was 53.6 while Q4 average fell to 52.6 from 52.8 in Q3 and the annual peak of 55.3 in Q2.
• Despite this, Business Expectations actually rose to a strong 62.2 in December against 55.2 in November. 12-months average was 65.5, ahead of Q4 average of 62.8, which marked the lowest quarterly performance of the index for 2010.
• Profitability remains poor cousin of expectations - Profitability index reached 46.1 in December, down from 48.4 in November. To see last month when profitability was in expansion mode we would have to go back to December 2007, so this December marks 36th month of shrinking profitability for Irish services producers.
  

Chart above concludes by showing some recovery in prices trends, with output prices still lagging inputs prices inflation. In fact, the gap between two series, having opened up once again around Q2 2010 remains wide.