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.

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.