5/4/21: Heating up inflationary risks

 

No, hyperinflation and, in fact, high inflation, ain't coming, yet. But the concerns with both are rising... 

Both, input prices and output prices have accelerated in March, compared to February in Markit's Manufacturing PMIs. 

Headline Markit statement says: "Conditions in the global manufacturing sector continued to brighten at the end of the first quarter, despite the potential for growth to be stymied by rising cost inflationary pressures and supply-chain disruptions." (Emphasis is mine).  And more: "Demand outstripping supply also contributed to a marked increase in purchasing costs during March. Input price inflation surged to a near-decade high, the pass-through of which led to the steepest rise in output charges since data on selling prices were first tracked in October 2009."

The same is happening in the U.S.: "Supplier lead times lengthened to the greatest extent on record. At the same time, inflationary pressures intensified, with cost burdens rising at the quickest rate for a decade. Firms partially passed on higher input costs to clients through the sharpest increase in charges in the survey's history."

7/5/20: BRIC Composite PMIs: Global Economy in a Free Fall

With Russia and China data finally in, here are the full updated BRIC PMIs for April (note: manufacturing has been covered in more details here: https://trueeconomics.blogspot.com/2020/05/4520-eurozone-manufacturing-pmis-crater.html).

Sharp drop in Manufacturing PMIs in April, compared to 1Q 2020, were accompanied by even more spectacular declines in Services PMIs:

Across the BRICs, Services PMI fell from 44.9 in 1Q 2020 to 30.6 in April. The two readings represent the lowest and the second lowest readings in quarterly PMIs in history of the series (since 1Q 2006).

Brazil Services PMI sunk from already-contractionary 45.9 in 1Q 2020 to 27.4 in April. Russia saw its Services PMI falling from 47.7 in 1Q 2020 to 12.2 in April, with the swing of -35.5 points in one go. India, however, went into an even worse collapse, with its Services PMI falling from 54.1 to 5.4. Indian economy should be contracting at more than 15.5 percentage points if these numbers are true.

China was a 'relative' out-performer in Services PMIs, with its index increasing from a strongly recessionary 40.4 in 1Q 2020 to 44.4 in April, signalling a moderate reduction in the rate of economic activity contraction.

In comparison, Global Services PMI stood at 24.8 in April, down from 45.5 in 1Q 2020. This means that two of the BRIC economies, Russia and India, are both underperforming Global PMI in the services sector.

As the result of the extreme changes in the Manufacturing and Services PMIs, BRICS composite PMIs have fallen sharply off their 1Q 2020 levels:

Global Composite PMI fell from 45.8 in 1Q 2020 to 26.5 in April, signalling worsening of the global recession. India matched Global Composite PMI reading in April, showing a fall from 46.9 in 1Q 2020 to 26.5 in April. China outperformed the Global Composite, with its Composite PMI rising from 42.0 to 47.6, even though April reading remains recessionary. Russian Composite PMI fell through the floor, declining from the recessionary 47.7 in 1Q 2020 to a depression-level 13.9 in April. India performed even worse, with its Composite PMI falling from growth-supportive 54.8 in 1Q 2020 to an unprecedented 7.2 in April.

Overall, movements in PMIs in March-April 2020 have been extreme. So extreme, I had to re-scale the charts and double-check the numbers, especially in the case of Russia and India.

4/4/19: BRIC PMIs for March Show Improved Growth Conditions

With March PMIs reported by Markit in, here are the monthly frequency trends for the BRIC economies activity, based on composite PMIs:

Overall BRIC activity as signalled by PMIs remains range-bound in the tight, low activity range over the last 6 years (second chart above). However, the composite activity is running close to the upper bound of the range, implying overall stronger performance in the recent month. This is confirmed by the first chart above, showing that both Russia and ex-Russia BRIC economies activity is accelerating on trend since July 2018.

More analysis, based on smoother quarterly data forthcoming, so stay tuned.

8/5/18: BRICS DECK: Part 2: PMIs, Investment and Inflation

In a recent post (http://trueeconomics.blogspot.com/2018/05/3518-brics-deck-2018-imf-updates.html) I have provided top level analysis of growth dynamics in the BRICS economies based on the IMF WEO April 2018 update. Here is the section of my BRICS deck with updated view on PMIs, Aggregate Investment and Inflation:

8/5/15: Euro Area Growth Indicator for April: Weak, but Improving

The €-coin index of growth indicators for Euro area published by Banca d'Italia and CEPR posted another rise in April, marking the fifth consecutive month of increases. Eurocoin printed 0.33 in April, up from 0.26 in March. Per Banca d'Italia, "the indicator was mainly buoyed by the increase in industrial production and rising share prices." In other words, welcome to the marvels of QE.

Forecast 3mo on 3mo growth rate is now at 0.3-0.35%, the highest since April 2014. However, April 2015 reading of 0.33 is still below April 2014 reading of 0.39.

The monetary policy remains firmly lodged in a low-growth, low-inflation corner, while rates are at their zero bound:

Growth conditions signalled by Eurocoin (not actual growth data, yet) signal 12mo growth returning to close to long-term average:

This is hardly impressive, since historical growth records for the Euro area are exceptionally anaemic and current major monetary policy push for growth should be expected to drive rates of growth much higher. This is not happening so far.

Euro area business confidence surveys indicate either weak (EU Commission) or falling (PMIs)

But actual PMIs are a more upbeat:

While Consumers continue to stay away from the shops:

6/1/2015: BRIC PMIs: Weaker Outrun in December

Markit released PMIs for all BRIC countries for both Services and Manufacturing covering December 2014. Here are the main results.

Starting with manufacturing:

• Brazil Manufacturing PMI posted its first 50+ reading after 3 months of consecutive sub-50 readings. December PMI came in at 50.2, which is basically signalling no statistically significant growth. On a quarterly basis, Q4 2014 average came in at 49.3 - a contraction, against 49.3 (yep, same) for Q3 2014 and 50.1 (almost no growth) in Q4 2013.
• Russian Manufacturing PMI for December came at disappointing 48.9, marking the first month of sub-50 readings since June 2014. Q4 2014 average is at 50.3 (basically near-zero growth) against Q3 2014 reading of 50.4 (very weak growth) and Q4 2013 reading of 50.0 (stagnation).
• China Manufacturing PMI came in at 49.6, the first monthly contraction that follows six consecutive months of at or above 50 readings. Q4 2014 average was 50.0 - meaning Chinese manufacturing posted flat growth across the quarter. Q3 2014 average was 50.7, same as Q4 2013. Overall, there are some very serious weaknesses in Chinese manufacturing sectors.
•  India Manufacturing PMI jumped from 53.3 in November to 54.5 in December, signalling acceleration in activity in the sector. Q4 2014 average is at 53.1 - up on 52.0 average for Q3 2014 and on 50.5 average for Q4 2013.

Now, Services:

• Brazil's Services PMI was even worse, set at 49.1 in December (a shallow contraction), continuing with sub-50 readings for the third month in a row. Q4 2014 average is at 48.6 (outright contraction), against Q3 2014 average of 50.5 (weak expansion) and 52.1 (stronger expansion) in Q4 2013.
• Russian Services PMI stood at 45.8 - sharp contraction - in December 2014, marking third consecutive month of sub-50 readings. The index averaged less than impressive 45.9 in Q4 2014, showing severe strains from collapse in domestic services, such as financial services. The index averaged 50.1 in Q3 2014 and 53.0 in Q4 2013.
• China Services PMI surprised to the upside, posting 53.4 reading in December, up on 53.0 in November. Q4 2014 average is at 53.1 - faster growth signal compared to Q3 2014 reading of 52.7 and Q4 2013 reading of 52.0.
• India Services PMI, lastly, posted a slight de-acceleration in growth, slipping from 52.6 in November to 51.1 in December. Q4 2014 reading is now at 51.2, which marks a slowdown in growth from 52.2 index reading in Q3 2014 and47.0 reading in Q4 2013.

And a table and a chart summarising changes in both sets of PMIs

Note the increase in weaker growth signals in December data compared to previous month, driven by poorer PMIs in Manufacturing and by unchanged performance outlook in Services. Also note, per chart above, Russia not only acts as a main downward driver for the BRIC overall PMI-related performance, but it shows strong decoupling in the direction of trend from January-March 2014 on, with the divergence now accelerating over the last three months.

5/11/2014: Ireland Manufacturing & Services PMIs: October 2014

With Ireland's Services and Manufacturing PMIs out for October, it is time to update the data set.  As usual, let us start with headline figures:

• Services PMI reading fell slightly to 61.5 in October from 62.5 in September. 3mo average through October is now at 62.1 which is slightly ahead of 3mo average through July 2014 (61.9). Year on year, 3mo average through October is up 2.6%.
• All of the above a comfortably 'growth signals' for Services sectors.
• Manufacturing PMI strengthened from 55.7 in September to 56.6 in October. 3mo average through October is now 1t 56.5 which is up on 55.2 for the 3mo average through July 2014 and is up 3.3% y/y.
• All of the above suggest strong expansion in Manufacturing, contributing to overall economic growth.

Chart below shows deviations in both indices from 50.0 (so positive readings signal economic activity expansion in the sector). 

Next, consider October readings y/y and on 2012 across both sectors:

The above clearly shows that over the last 12-15 months Irish economy has experienced positive contributions to overall economic growth from both sectors: Services and Manufacturing, with the rates of growth now significantly in excess of historical averages and being led more by Manufacturing than Services ('Current" reading is firmly above the trend line). This can be a positive signal when it comes to employment expectations, assuming growth is concentrated more in the sectors relatively free from rampant tax optimisation by the MNCs (aka outside pharma).

2/8/2014: BRIC Manufacturing Rebound: July 2014

Summary of BRIC Manufacturing PMIs released yesterday:

Not that you'd notice from the mainstream media, but Russia's manufacturing is back above 50.0 in July after 8 consecutive months of below-50 readings.

A comfortable growth range for Russian Manufacturing PMIs should be around 53-55, so the economy is still miles away from a robust recovery. Further concern is that July 2014 reading might be similar to a spike in October 2013 that was followed by renewed contraction.

5/6/2014: Irish Composite Activity indicator for Services & Manufacturing: May 2014

In the previous post, I covered Irish manufacturing and services PMIs on monthly frequency basis. Here, an update on quarterly (Q2 to-date) and composite series.

As chart above shows:

• Manufacturing PMI rose to 55.6 Q2 (to-date) against 53.7 in Q1 2014 and 49.3 in Q2 2013. These are solid gains. Still, some lingering doubts as to just how much growth can be read off this result. Q1 2014 reading was bang-on in-line with Q4 2013 (53.6) and as we know, Q4 2013 was a quarter of falling GDP.
• Services PMI rose to 61.8 in Q2 2014 (to-date) against 59.9 in Q1 2014 and 54.3 in Q2 2013. Again, solid gains.
• Composite PMI (this is not supplied by the Markit/Investec, but is computed by myself based on their data for Manufacturing and Services) rose to 60.3 in Q2 2014 (to-date) up on Q1 2014 reading of 58.4 and Q2 2013 reading of 52.8 (note: including Construction into Composite PMI generates virtually identical result).

Key takeaways:

1. Solid performance on Composite PMI reading. Q2 2014 to-date shows strongest growth since Q2 2006
2. Q1 2014 and Q4 2013 both showed strongest growth signals since Q1 2007.
3. Thus, by all readings in the last three quarters, Irish economy should be expanding in Q1 2014 and this expansion should have accelerated in Q2 2014.

5/6/2014: Irish Manufacturing & Services PMIs: May 2014

Both, Irish Services and Manufacturing PMIs are now out for May 2014 (via Markit and Investec Ireland) and it is time to update my monthly, quarterly and composite series.

In this post, let's first cover the core components in monthly series terms:

1. Manufacturing PMI eased from 56.1 in April to 55.0 in May - a decrease that reduced the implied estimated rate of growth in the sector. Still, Manufacturing index is reading above 50.0 (expansion line) continuously now since June 2013. 3mo MA through May is at 54.8 - solid expansion and is ahead of 3mo average through February which stood at 53.1. So expansion accelerated on 3mo MA basis. The current 3mo MA is ahead of 2010, 2011 and 2013 periods readings. Over the last 12 months there have been only 3 months with monthly reductions in PMIs: November 2013 (-2.5 points), January 2014 (-0.7 points) and May 2014 (-1.1 points).
2. Services PMI eased only marginally from 61.9 in April to 61.7 in May - this implies that services sector growth barely registered a decline and remained at a blistering 61-62 reading level. Services index is reading above 50.0 (expansion line) continuously now since July 2012, helped no doubt by a massive expansion of ICT services MNCs in Ireland, which have little to do with the actual economic activity here. 3mo MA through May is at 60.0 - solid expansion and only slightly below 3mo average through February which stood at 60.3. The current 3mo MA is ahead of 2010, 2011 and 2013 periods readings. Over the last 12 months there have been 5 months with monthly reductions in PMIs, all sharper than the one registered in May 2014.

Here are two charts showing historical trends for the series:

The two series signal economic expansion across both sectors in contrast to May 2012 and 2013:

In line with the above chart, rolling correlations between the two PMIs have firmed up as well over recent months, rising from 0.33 in 3mo through February 2014 to 0.5 for the 3mo period through May 2014.

We will not have an update on Construction sector PMI (Markit & Ulster Bank) until mid-month, so here is the latest data as it stands:

• In April 2014, Construction sector activity index rose to 63.5 from 60.2 in March 2014. This marks second consecutive month of m/m increases. In the last 12 months, there have been 7 monthly m/m rises in the index and index has been returning readings above 50 since September 2013.

Core takeaways:

• Both services and manufacturing sectors PMIs are signaling solid growth in the economy,
• Jointly, the two indices are co-trending well
• Caveats as usual are: MNCs dominance in the indices dynamics and shorter duration of statistically significant readings above 50.0 line: Manufacturing shows only last three consecutive months with readings statistically significantly in growth territory; while Services index producing statistically significant readings above 50 for the last 6 months.
• Last caveat - weak relationship remains between actual measured activity in the sectors and the PMI signals: http://trueeconomics.blogspot.ie/2014/05/1552014-pmis-and-actual-activity.html

Next post will cover quarterly data and composite PMI.

15/5/2014: PMIs and actual activity: something is still amiss...

Services Activity vs Services PMIs... something is seriously amiss... still...

Notice how the activity has fallen in Q1 2014 compared to Q1 2013 and yet PMIs expanded even further into growth territory?..

Notice how in ALL 1st quarters since 2011 (recovery on-set), PMIs grossly over-estimated actual changes in Services Activity, signalling slower growth in Q1 2012 y/y against actual activity rising sharply, signalling greater growth in Q1 2013 against actual growth rate falling short of PMI-signalled one, and lastly completely contradicting actual outrun in Q1 2014.

Notice how since the onset of the 'recovery' - PMIs-consistent average growth (vertical reading on the trend line, for every underlying level of PMIs) is always below actual activity recorded...

Go figure the puzzle, but my suspicion is that the survey is skewed too heavily to MNCs...

8/5/2014: Irish Composite Activity indicator for Services & Manufacturing: April 2014

In the previous post I covered Irish Manufacturing and Services PMIs as released by the Investec/Markit. With both PMI indices out, time to update my own Irish Composite Activity Indicator (CAI) based on PMIs and showing a measure of aggregate economy-wide activity in private sector.

The CAI is based on quarterly (or closest 3mo average) readings for two PMIs.

Chart below illustrates the series.

Q2 2014 reading to-date is for CAI of 58.8 which is slightly up on Q1 2014 reading of 58.4 and is up 11.3% y/y. With Q1 2014 up q/q by 0.36% and Q2 (to-date) reading up 0.62% q/q, the pace of expansion is rising.

So far, in Q2 2014 we are marking 17th consecutive quarter of expansion in economic activity. Which, of course, stands contrasted by the fact that GDP posted 8 quarters of q/q declines over the last 16 quarters for which we have data, while GNP posted 7 quarters of contractions.

Basic point is the old one: PMIs have virtually no connection to either GDP or GNP.

Still, good feeling is worth something (which is why we are willing to pay to see soft-ball comedy and entertainment) and on this measure, CAI shines some warmish light on us all... 

8/5/2014: Irish Manufacturing & Services PMIs: April 2014

Irish Manufacturing and Services PMIs were out for April both showing aggregate gains, both not reported sufficiently in terms of data coverage to make any verifiable statements about composition of these gains.

Let's start from Manufacturing figures first:

• April 2014 PMI reading was at 56.1 - which is well above statistically significant bound of expansion. 
• 3mo MA through April is now at 54.8, some 1.9 points above 3mo MA reading though January 2014 and 5.5 points ahead y/y. Both good indicators of improving growth in the sector.

On Services side:

• April 2014 PMI reading was at blistering 61.9 - which is strongly above statistically significant bound of expansion. 
• 3mo MA through April is now at 60.0, basically flat on 3mo MA reading though January 2014 (60.13) and 2.8 points ahead y/y. Both good indicators of continued strong growth in the sector.

However, 3mo MA on 3mo MA changes are not spectacular in Services sector, as the chart below shows. This might simply be due to already sky-high readings attained in recent months.

Both indices show expansion in the economy (a changed from same period 2013) and as the chart below shows, correlation between the two indices is running strong (both co-move currently).

So based on top-level data, things are improving. The caveats are as usual:

1. We have no idea what is happening on the underlying side of the above stats as Investec & Markit no longer make available sub-indices information
2. Much of the PMIs-signalled activity is not coinciding with actual activity on the ground over the medium term (although some indications are that once we are firmly on growth trend path, the two sets of data - CSO and PMIs - will start comoving again).

In short, just as sell-side stockbrokers reports and Consumer Confidence Indicator, PMIs are least useful in telling the real story just when the demand for such story is most acute. 

10/4/2014: Irish Composite Activity Indicator (CAI) based on PMIs: Q1 2014

Based on monthly PMI data, here is the blog-exclusive quarterly Composite PMI series. These take quarterly averages for Manufacturing and Services PMIs for Ireland (compiled by Markit and published by Investec Ireland) and weighting them up on the basis of quarterly weights of each sector in the Private Sector contributions to GDP (based on CSO National Accounts Data).

Here is the chart showing both PMIs and the composite index compiled by myself. 

So on a quarterly averages basis:

• Manufacturing PMI rose 0.25% q/q having previously been up 1.70% in Q4 2013. Year on year, Q1 2014 PMI came at 10.45% above Q1 2013 and this marks an improvement on 6.55% growth y/y recorded in Q4 2013. We are now into 3rd consecutive quarter of above 50.0 average performance.
• Services PMI rose 0.39% q/q having previously been up 3.28% in Q4 2013. Year on year, Q1 2014 PMI came at 7.18% above Q1 2013 and this marks an improvement on 3.14% growth y/y recorded in Q4 2013. We are now into 3rd consecutive quarter of above 50.0 average performance.
• Composite PMI reading is at 58.4 in Q1 2014 and this is 0.36% higher than in Q4 2013 and 10.16% higher than in Q1 2013. Q1 2014 marked 16th consecutive quarter of composite index reading above 50.0.

2/4/2014: Global Manufacturing PMI in Two Charts: March 2014

Having posted on Irish Manufacturing PMI (http://trueeconomics.blogspot.ie/2014/04/242014-irish-manufacturing-pmi-march.html) here are two interesting charts plotting PMIs for a number of countries. Both via BusinessInsider:

and

2/4/2014: Irish Manufacturing PMI: March 2014

We now have Manufacturing PMI for Ireland for Q1 2014, so here are couple updated charts:

Few notable things in the above:

1. PMI now solidly above the 'statistical significance' range for the first time since October 2013. Also, March 2014 marks eighth consecutive month of PMI ahead of its post-crisis average (from January 2011).
2. The post-crisis average is still lower than pre-crisis average.
3. PMI continues to trend up with new short-term trend running from around June 2013.
4. 12mo average is at solid 52.1 and 3mo average through March (Q1 2014) is at 53.7 which is basically identical to 3mo average through December 2013 (Q4 2013) which is 53.6. 
5. Q1 2014 average is above same period reading for 2011 (49.8) and 2012 (50.1), but it is below same period 2010 average (56.1).

Key takeaway: solid PMI reading for Irish manufacturing - a good thing. As I noted before, Manufacturing PMI has stronger link to our GDP and actual industry output than Services PMI, so this is a net positive for the economy.

10/2/2014: Irish Services & Manufacturing PMI, January 2014

While on the topic of PMIs (see Construction PMIs update here: http://trueeconomics.blogspot.ie/2014/02/1022014-ulster-bank-construction-pmis.html), let's update also Manufacturing and Services PMIs data.

Services:

• January Services PMI index slipped slightly to 61.5 from 61.8 in December 2013. The deterioration was not material from statistical point of view, so the index remains effectively at the high level for the last 12 months.
• 3mo MA through January 2014 was 60.1 - above 56.2 in the same period through January 2013, and ahead of 3mo MA through November 2013. This is good news as it allows for some correction in monthly series volatility.
• The series are above their crisis-period trend and are still trending up.
• The index is now above 50.0 since August 2012 - a solid performance, with the rates of growth being on average above 60.0 since at least July 2013.

Manufacturing: 

• January Manufacturing PMI index also moderated to 52.8 from 53.5 in December 2013, with this moderation being significant, albeit shallow.
• On a 3mo MA average, index is at 52.9, which is ahead of 51.4 in the same period of 2013 and is ahead of the 3mo MA through November 2013.
• The index readings have rested above 50.0 nominally since June 2013, although they are significantly (statistically) above 50.0 for a shorter period of time, from somewhere around September 2013.

Overall, January posted slowdown in both indices growth, and 3mo MA for growth rates in the index is now negative for Manufacturing, and moderately positive for Services.

Longer-range good news is highlighted in the next chart, showing that in January 2014, levels of two PMIs were consistent with expansion across both sectors, contrasting the situation in January 2012 and January 2013.

Top level conclusion: The numbers show a good start to 2014, but Manufacturing remains a weaker point for the economy. Given monthly volatility in the indices, we need to see more data from PMIs to call the 2014 trends


As usual, the caveats apply: I have no data on sub-components of both PMIs - the core information that is no longer being made public by Investec and Markit (the publishers of the two series). Unfortunately, this means I no longer cover the two organisations' analysis of the components as these are unverifiable and statistically no longer testable.