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

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

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

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


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

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

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

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

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

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

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...