3/2/16: Russian Services & Composite PMI: Poor Start for 2016

Russian Services PMI for January 2016 came in with a hugely disappointing reading, falling to 47.1 from already poor 47.8 recorded in December. Per Markit: “This fall was driven by a solid contraction in new business levels, leading to another deterioration in backlogs of work. Meanwhile, job shedding persisted throughout the sector as firms turned pessimistic towards their future outlook for activity. Input prices continued to rise at a much quicker pace than average charges.”

On a 3mo average basis, the index is now at 48.2, worse than already poor 49.4 average for the 3 months through October 2015, although, as expected - well above the abysmal 44.7 average for the 3mo period through January 2015. Just how bad the current 3mo average and the latest monthly index reading is? Historical average for Russian services PMI is at 55.0 - full 7.9 points ahead of January reading.

Bad news is that the Services sector contraction has now accelerated (on both monthly basis- for the second consecutive month) and on 3mo basis too.

Again, per Markit: “Operating conditions in the sector remained challenging… Down from 47.8, the latest reading signalled the quickest decline in output for ten months.”

Chart to illustrate the Services sector woes:

Meanwhile, Russia’s Composite Output Index remained in contraction territory in January, posting a reading of 48.4, up on 47.8 in December 2015. The Composite index was helped to the upside by the Manufacturing PMI which was also in a contractionary territory at 49.8, but above the horror show of Services PMI. January marked second consecutive month that both Manufacturing and Services PMIs for Russia were below 50.0. last time that this happened was in December 2014-January 2015 and in February-March 2015 - in other words, at the dire depth of the current crisis.

Note: I covered Russian Manufacturing PMIs in detail here: http://trueeconomics.blogspot.com/2016/02/1216-russian-manufacturing-pmi-january.html.

Per Markit, “the rate at which incoming new orders contracted [for Services providers] was the fastest since March 2015, with anecdotal evidence linking this to a lack of market demand. That said, Russian manufacturers reported a slight expansion in incoming new orders in January, having registered a decline in December.”

Overall, Russia is once again (second month in a row) ranks as the second lowest BRIC performer in terms of Composite PMI reading, ahead of only a complete basket case of Brazil. More on this to come, so stay tuned.

4/1/16: Russian PMI in 4Q 2015: Signalling Continued Weaknesses

Having Russian PMIs for December 2015 allows us to take a look at the economy quarterly performance signals. As noted in the previous post (http://trueeconomics.blogspot.ie/2016/01/4116-russia-services-manufacturing-pmis.html) with the decline in output reflected across both manufacturing production and services activity, Russian economy’s composite PMI averaged 49.1 in 4Q 2015 which is much worse than 50.4 average for 3Q 2015, suggesting that not only did the economy failed to attain stabilisation, but that growth might have turned more negative in 4Q 2015.

Let’s take a closer look at the quarterly averages by sector.

Russian Manufacturing PMI for 4Q 2015 stood at 49.7, which is a gain on 48.4 in 3Q 2015 and marks the strongest quarterly reading since 4Q 2014, but also marks the fourth consecutive quarter of sub-50 readings. The weaknesses in Manufacturing are especially troubling, as the sector is broadly targeted for imports substitution - a major policy shift by the Government since the start of 2015. Making matters worse, the sector should have benefited from strong ruble depreciation over the last 12 months, which - as it appears so far - did not lead to substantial increase in exporting activity. In part, this reflects weaknesses in global demand, but in part it reflects structural problems in Russian manufacturing that find goods supplied by the sector of generally non-competitive quality for global markets, even amidst improved price competitiveness.

Overall, we now have four consecutive quarters of sub-50 readings in Manufacturing sector - for the first time since 3Q 2008-1Q 2009 period.

Russian Services PMI for 4Q 2015 stood at 48.5, down sharply on 50.7 reading in 3Q 2015 and marking the weakest reading in the series since the start of 2Q 2015.Disappointingly, 4Q reading for Services sector broke two consecutive quarters of above 50 readings and done so sharply. Since the start of 1Q 2014, the sector has now posted sub-50 readings in 5 out of 8 quarters, and it managed to post statistically significant readings above 50 in only two quarters.

The above has meant that the composite activity index (distinct from Composite PMI) for Russian stood at 93.9 in 4Q 2015, which is an improvement on 90.3 in 3Q 2015, but marks fifth consecutive quarter of the overall production growth being negative (across combined services and manufacturing sectors). While 4Q composite indicator was the strongest in three quarters, it remains extremely weak (statistically significantly below zero growth marker of 100) and the third weakest of all quarters since the start of 3Q 2009.

On the net, therefore, while Russian economy posted some 4Q signals of growth consistent with less sharp contraction across combined Services and Manufacturing sectors, than in 2Q-3Q 2015, the deterioration in growth conditions in the economy in 4Q 2015 remained pronounced and this strongly suggests that we did not witness stabilisation of the Russian economy in 4Q 2015.


Stay tuned for analysis of BRIC PMIs next.

4/1/16: Russia Services & Manufacturing PMIs: December 2015

Russian PMIs are out for December 2015, so here is monthly data reading:

Russian Manufacturing PMIs posted a deterioration in sector performance in December, falling to 48.7 from 50.1 in November. This reverses two consecutive months of above 50 readings in October and November. It is worth noting that October-November readings were not statistically distinct from 50.0. On a quarterly basis, 4Q 2015 average reading was 49.7, which is better than 48.4 average for 3Q 2015, but still below 50.0 line. Overall December reading was the weakest since August 2015 and signals that the much anticipated stabilisation of the Russian economy did not take place in December.

Per Markit release: “Leading the deterioration in business conditions at Russian manufacturers was a fall in production. The rate of contraction quickened to the fastest since May 2009, with the majority of panellists linking this to a drop in new order intakes. As a result, a lower volume of post-production inventories was recorded. Meanwhile, Russian manufacturers continued to shed jobs during December. Falling employment has been reported in every survey period since July 2013, with the rate of contraction quickening to the sharpest in three months. The decline in staff numbers was matched by a solid deterioration in outstanding business volumes. Backlogs of work have been depleted in each of the past 34 survey periods. Elsewhere, incoming new orders slipped into decline in December, ending a three-month sequence of growth. However, the drop in new work was marginal and centred on intermediate goods producers. Data suggested that the main source of weakness was external, as export orders were down sharply.”

Chart to illustrate:

Russian Service PMI also reported a fall in output marking the third successive month of declines, driven by a slight decrease in new business levels. Job cuts continued in the sector as outstanding business deteriorated. The headline seasonally adjusted Russia Services Business Activity Index fell to 47.8 in December from already contractionary 49.8 in November. In 4Q 2015, average Services PMI reading was 48.5 against 50.7 in 3Q 2015, showing stronger deterioration in growth conditions in the sector in 4Q 2015. Current reading of 47.8 is the joint-weakest (with October 2015) for nine months.

Per Markit release: “New business levels at service providers slipped further into decline during December. However, the rate at which new work deteriorated was only marginal. Where a lower volume of new sales was recorded, panellists linked this to a combination of waning demand in the sector and payment difficulties being experienced by customers… With business activity at Russian service providers declining, pressures on operating capacity fell further in December. The rate at which work-inhand depleted eased to the slowest in three months yet remained solid overall. Anecdotal evidence suggested that lower backlogs of work were attributed to a drop in new business. Falling staff numbers have been reported in every month since March 2014, with the latest drop at a faster pace than in November. There was some evidence that lower employment reflected squeezed cash availability at service providers.”

Chart to illustrate:

Finally, Russia’s Composite index slipped into contraction during December, falling to 47.8, from 50.5 in November, with the decline in output reflected across both manufacturing production and services activity. Overall, Russian economy’s composite PMI averaged 49.1 in 4Q 2015 which is much worse than 50.4 average for 3Q 2015.

The data strongly suggests that not only did the economy failed to attain stabilisation, but that growth might have turned more negative in 4Q 2015.

I will be posting on quarterly figures for PMIs next, so stay tuned for more.

6/11/15: BRIC Composite PMIs for October: Some Sunny Spells Amidst a Downpour

Having covered 

• BRIC Manufacturing PMIs for October here, and
• BRIC Services PMI here (),

now, let’s take a look at Composite PMIs

India:

India’s composite PMI rose from 51.5 in September to 52.6 in October, indicating stronger growth in private sector activity across the country and the joint-fastest pace of growth since March 2015. Per Markit: “The latest improvement was driven by services, as goods producers saw growth of production wane.” 3mo average though October 2015 stood at 52.2, signalling faster growth in the 3mo average through July (50;9) and an increase in there ate of growth compared to 3mo period through October 2014 (51.2). This marks fourth consecutive month of above 50 reading for India and also a fourth consecutive month of India leading BRIC group in growth terms.

China: 

China Composite PMI signalled some early signs of stabilisation of Chinese business activity in October, posting reading of 49.9, up from September’s 80-month low of 48.0. Nonetheless, the index reading in October was the third lowest since May 2014. On a 3mo average basis, 3mo reading through October 2015 was at poor 48.9, down on 50.9 for the 3mo period through July 2015 and down on 51.9 3mo average through October 2014. October marked a third month in a row of negative growth across the Chinese economy, although relative position of Chinese economy in BRIC rankings did improve from being second worst in July-September to third worst in October.

Russia:

Russian Composite PMI posted a very disappointing reading of 49.0 in October, down from 50.9 in September. On a 3mo average basis. Russian Composite PMI fell from 50.1 reading for the 3mo average through July 2015 to 49.7 for the 3mo period through October. 3mo average through October 2014 was 50.0. Per Markit release: “The Russian service sector returned to contraction territory at the start of the fourth quarter of 2015 as new work stagnated and excess capacity persisted. …In contrast, manufacturing output rose for a second successive month and to the highest degree since

last November. However, growth was insufficient to prevent the composite index slipping to a seven month low of 49.0 (from 50.9 in September).” Thus, in October, Russia moved to the position of second weakest growth in the BRIC group.

Brazil:

Brazil’s Composite PMI remained unchanged at 42.7 in October, staying below 50.0 reading threshold for the eighth month running, “highlighting the longest sequence of continuous decline in Brazilian private sector output since the global financial crisis. Sharp rates of contraction were noted in both the manufacturing and service sectors. …the latest reduction in employee headcounts was the most pronounced since composite data were first available (March 2007).” 3mo average through October stood at abysmally poor 43.4, which is marginally worse than 43.5 3mo average through July 2015 and significantly below the recessionary reading of 49.5 recorded over the 3 months through October 2014.

As chart above indicates, overall Composite Activity Index for BRIC economies as a whole continued to take water with both trend and current reading well below 100.0 marker of zero growth.

Brazil continues to lead BRIC group into recessionary territory in terms of aggregate growth, with Russia now ranked as second lowest growth momentum economy. On a simple average basis, BRIC Services PMI came in at around 49.0 with Manufacturing coming at 48.3, suggesting that overall growth conditions remain weak across the world’s leading EMs. 

3/9/15: Russian Manufacturing, Services & Composite PMIs: August

Russia PMI data for Services, Manufacturing and Composite posted sub-50 performance across all three indicators in August, returning the economy back to where it was around June 2015, and erasing the fragile expectations of stabilisation that were based on July data.

As noted in my analysis of BRICs manufacturing PMIs earlier (link here):

Russia Manufacturing PMI fell to 47.9 from 48.3 in July, marking 9th consecutive month of sub-50 readings and worst performance in the sector since May 2015. August move effectively demolished previous expectations of stabilisation in Manufacturing sector in Russia.

Per Markit release: "Operating conditions in the Russian manufacturing sector continued to deteriorate during August amid reports of a deterioration in the economic environment. Output was little changed, while new orders and employment both fell to the greatest degrees since May. Notably, a depreciation in the Russian rouble against the US dollar led to a sharp and accelerated increase in average input prices by raising the cost of imported goods. …The net effect was a decline in demand and a drop off in levels of incoming new business."

Meanwhile, Services PMI posted a disappointing decline from 51.6 in July to 49.1 in August, pushing the index below 50 mark once again. The index fell to its lowest level for the period covering last 5 months.

Per Markit: "The Russian service sector registered a slight fall in business activity during August as incoming new orders were barely changed and excess resources remained evident. Backlogs of work were again cut sharply, placing further downward pressure on staffing levels… Undermining service sector activity was a general lack of growth in incoming new business. Latest data showed that new work was only marginally higher, with companies bemoaning a lack of funds at clients amid evidence of a challenging economic environment.

With booth Manufacturing and Services down, Composite PMI for Russia fell below 50.0 marker in August, reaching 49.3 against 50.9 in August. This marks the second month in the last 3 months of sub-50 readings and August Composite PMI level is at the lowest levels since April 2015.

SUMMARY: As I noted consistently in the past, any sign of stabilisation in Russian economy coming on foot of disappointing 1H 2015 will require several confirmations before we can call a switch in the growth trend. This confirmation (on foot of July upside performance) did not arrive to-date.

5/8/15: Russian Services & Composite PMIs: July 2015

Having covered Russian Manufacturing PMI for July here: http://trueeconomics.blogspot.ie/2015/08/3815-russia-manufacturing-pmi-july-2015.html, let's take a look at the today's Markit release of Services and Composite PMIs.

Services PMI rose to 51.6 in July compared to 49.5 in June, with new business activity reaching fastest growth in 20 months. On a 3mo average basis, sector performance through July was at 51.3 - showing a marginal rate of recovery, and a major improvement on 3mo average through April 2015 (at 46.0), as well as on 3mo average through July 2014 (48.5).

As chart above shows, Russian Services PMI posted above 50 readings in three out of last four months. However, by historical standards, this expansion is extremely weak.

Per Markit: "The Russian service sector returned to modest growth during July, with activity rising on the back of the strongest gain in new business for over a year-and-a-half. Still, excess capacity remained a problem, with companies again comfortably able to make inroads into their work outstanding despite cutting jobs for a seventeenth month in succession."

The decline in Manufacturing (see link above) meant that the Composite PMI for Russia was weaker than the Services PMI. Nonetheless, Composite PMI reached 50.9 in July, up on 49.5 in June. 3mo average through July is at 50.7 against 3mo average through April at 47.4 and 3mo average through July 2014 at 49.5. Just as with Services PMI, Composite PMI has now posted above 50 readings in three out of four last months.

The above suggests strengthening in the stabilisation and early recovery momentum in the Russian economy, albeit we need a rebound in Manufacturing to above 50.0 reading for a couple of months to confirm robustness of this development. While it does appear the Russian economy is now past the worst period of contraction, calling any recovery will require at least couple of more months of improvements in PMIs.

3/4/15: Russian Services & Composite PMIs: Signal of Slower Contraction in Q1 15

Russian Services PMI (Markit and HSBC) came in with a slight improvement in March, rising to 46.1 from 41.3 in February and signalling slower rate of contraction. Services PMI is now reading sub-50 for the 6th month in a row, with 3mo average for Q1 2015 at abysmal 43.8 against Q4 2014 average of 45.9 and Q1 2014 reading of 49.6.

Per Markit release: "Russian service providers signalled some confidence that the recent downturn will prove transitory, with over a third of panellists forecasting some growth of activity from present levels over the next 12 months." Nonetheless, forward expectations are not translating in an improvement in operating conditions today, so "…service sector firms continued to shed staff during March. Latest data showed employment falling for a thirteenth successive month, and again at a marked pace. Despite a reduction in capacity, service providers had sufficient spare resources… Manufacturers also signalled spare capacity during March, with both employment and outstanding business being cut, albeit at slower rates."

As the result of improved (slower) rate of decline in Services activity, Russian Composite PMI also moderated the rate of decline, rising from 44.7 in February to 46.8 in March. As with Services sector, Composite PMI is now running below 50.0 for the sixth month in a row. 3mo average through Q1 2015 is at 45.7, which is much worse than already poor 48.0 average for Q4 2014 and 49.2 average for Q1 2014.

As chart above confirms, Russian economy is in a state of 'getting worse  more slowly' rather than in a state of 'getting better'. Positive outlook over the next 12 months (see details here: http://trueeconomics.blogspot.ie/2015/04/2415-russia-business-outlook-q1-2015.html remains subdued, with Q1 2015 improvement on Q4 2014 failing to restore expectations to 2012-2013 average, let alone to the recovery-consistent 2010-2011 averages.

4/3/15: Russian Services and Composite PMIs signal continued deterioration in the economy

Services PMI for Russia for February 2015 came in at a disappointing - nay disastrous - 41.3 down from January 43.9 and marking the fifth consecutive month of contraction. 3mo average through February is now at 43.7 which is much worse than already poor 3mo average through November 2014 (47.5) and is down massively on 3mo average through February 2014 (51.5). February reading is the lowest in 71 months.

Composite PMI came in at 44.7 - marking a sharp contraction in the economy, down from 45.6 in January 2015. February was the 5th consecutive monthly sub-50 reading and  the lowest for 69 months. 3mo average for Composite indicator is at 45.8, which is down on 3mo average through November 2014 (49.2) and sharply down on 3mo average through February 2014 (50.8).

Chart above shows continued downward trend in all three series since around October 2012, preceded by a weak growth trend from the point of recovery after the Global Financial Crisis in and around Q4 2009 through Q3 2012. The current sub-trend of accelerated decline in composite and services PMIs (August 2014-present) is, dynamically, very similar to the sub-trend over October 2013-May 2014 and similar, again to the sub-trend over January 2013 through July 2013. Dynamically, all indication are that over the next 4-6 months we will see both services and composite indicators hitting mid-30s and manufacturing PMI falling toward high 30s, as consistent with the economic contraction rate closer to 4-5 percent over the year.

Note: Russian manufacturing PMIs were covered here: http://trueeconomics.blogspot.ie/2015/03/2315-russian-manufacturing-pmi-february.html

4/2/15: Russian Services & Composite PMIs: January

Russian manufacturing PMI slipped deeper into contractionary territory posting 47.6 in January compared to 48.9 in December, as covered here: http://trueeconomics.blogspot.ie/2015/02/2215-irish-manufacturing-pmi-january.html

Today's release of the Services PMI adds to the gloom. Services PMI posted its fourth consecutive monthly reading below 50.0, coming in at abysmal 43.9 in January, down from an already disastrous 45.8 in December. 3mo MA through January is now at 44.7 - a deep contraction, deepest since 2009 recession. This compares to the already contractionary 49.4 3mo MA through October 2014. 3mo average through January 2014 was benign 52.2. So we have a full swing of 7.5 points year on year on a 3mo MA basis.

Things are bad over both sectors of the economy, implying that the Composite PMI should be performing poorly as well. No surprise there, hence, with Composite PMI falling to 45.6 the lowest monthly reading since May 2009 and the fourth consecutive monthly reading sub-50. 3mo average through January 2015 is at 46.8, marking significant contraction that accelerated from October 2014 through January 2015. This compares to 3mo average of 50.4 for the 3 months period through October 2014 and with 51.5 3mo average through January 2014. Year on year, 3mo average reading is now down 4.7 points.

In summary, January m/m decline in PMIs was second steepest over 12 months period for Manufacturing, fourth steepest for Services and third steepest for Composite PMI.

The downward trend across all series is being reinforced since Q3 2014.

31/12/2014: Falling Again: Russian PMIs for December

HSBC and Markit released Russian PMIs for December, showing deteriorating conditions in Russian economy, as expected, given the severe Ruble crisis that hit mid-December.

Manufacturing activity posted a reading of 48.9 which is down from 51.7 in November, signalling a switch from a rather average growth to a contraction. December reading was close to being statistically significant for a sharp decline. Q4 2014 average Manufacturing PMI was at 50.3 which is better than Q4 2013 reading of 50.0 and worse than Q4 2012 reading of 51.7. But December figure breaks three consecutive months of above 50.0 readings and Q4 2014 reading is now below Q3 2014 average of 50.8.

Services PMI continued sub-50 print for the third consecutive month, coming in at 45.8 in December. Q4 2014 showed sharp deterioration in Services compared to Q3 2014 (50.2), as well as compared to Q4 2013 (53.0) and Q4 2012 (56.8).

Composite PMI fell to 47.2 in December from already weak 47.6 in November, marking third consecutive month of sub-50 readings. Q4 2014 average is at 48.0, far worse than Q3 2014 average of 51.1 and well below Q4 2013 average (51.1) and Q4 2012 average (52.7).

Overall, as chart above clearly shows, the downward trend in Russian economic activity across all sectors, the trend that set in around November 2012 and started flashing signals of recessionary dynamics around Q4 2013, remains in place.

6/11/2014: BRIC PMIs: Heading for a Recession...

BRIC PMIs are out for October, signalling sharp drop-off in economic activity across the EMs. Here is the updated data:

Manufacturing:

• Brazil Manufacturing PMIs slipped deeper into contraction territory for the second consecutive month, dropping from 49.3 in September to 49.1 in October. 3mo average is now at 49.5 compared to 3mo average through July at 49.0. Year on year, 3mo average is down 0.7 points.
• Russia Manufacturing PMI slipped from 50.4 in September to 50.3 in October, also signalling a slowdown in growth, but not an outright contraction as in the case of Brazil.
• China Manufacturing PMI improved to 50.4 in October from 50.2 in September. 3mo average through October is now at 50.3, up slightly on 50.0 on 3mo period through July 2014 and almost unchanged on year ago (50.4).
• India Manufacturing PMI improved from 51.0 in September to 51.6 in October, with 3mo average through October at 51.7, slightly below 51.8 3mo average through July. Year on year 3mo average through October is up very strongly 2.4 points (from 49.2 in August-October 2013).

Overall, Manufacturing activity across BRICs remains highly subdued with India being the only country posting a weak, but positive trend from Q2 2013 on.

Services:

• Brazil Services PMIs fell sharply into contraction territory, from 51.2 in September to 48.2 in October. 3mo average is now at 49.5 compared to 3mo average through July at 50.6. Year on year, 3mo average is down 1.4 points. This means both sides of Brazil's economy are now in contraction, first time this happened since August 2013.
• Russia Services PMI contracted sharply from 50.5 in September to 47.4 in October, also posting an outright contraction as in the case of Brazil. 3mo MA is now at 49.4 which is a shallower contraction signal than 48.1 3mo average through July. A year ago, 3mo average was running at 51.9.
• China Services PMI posted a slowdown in growth to 52.9 in October from 53.5 in September. 3mo average through October is now at 53.5, up on 51.3 for the 3mo period through July 2014 and higher than 52.6 reading a year ago.
• India Services PMI deteriorated from 51.6 in September to 50.0 in October, with 3mo average through October at 50.7, below 51.3 3mo average through July. Year on year 3mo average through October is up very strongly (from 46.4 in August-October 2013).

Overall: Services activity deteriorated in all BRIC economies, while Manufacturing performance deteriorated in two economies and improved in 2 other.

Summary of both PMIs changes is here:

Using a simple total of two PMIs, we can trace overall trends in the BRIC economies (without weighting these by lagged services v manufacturing shares). The dynamics are striking:

Overall economic conditions across the BRIC economies deteriorated in October compared to September, with Russia leading with a sharp downturn. Downward trend in the BRIC economies has now been in place since January 2013, with Russian economy leading in this dynamic from October 2012.

Note: you can read more detailed analysis of Russian PMIs here: http://trueeconomics.blogspot.ie/2014/11/6112014-russia-pmis-signalling-poor.html